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14. What are the highest tax rates for each of the followingscenarios?

____. Operating income from a hotel earned by a foreigncorporation (excluding branch profits tax)

____. Interest income earned by a foreign corporation from a USborrower

____. Net rental income earned by an U.S. individual (excludethe passthrough deduction)

____. Capital gain earned by an U.S. individual

____. Interest income earned by a U.S. corporation

____. Capital gain earned by an U.S. corporation

____. Depreciation recapture on the sale of U.S. real estate(Section 1250 property) for an individual

____. Depreciation recapture on the sale of U.S. real estate(Section 1245 property) for an individual

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Casey Durgan
Casey DurganLv2
29 Sep 2019

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1.( T or F ) An individual who directly owns real estate andearns net rental income for the tax year January 1 – December 31,2018 will have an effective tax rate of 29.6% on it.

2.( T or F ) Jumbo LLC, is treated as a partnership and is ownedby 50% by two individuals, Rod and Tom. Jumbo LLC acquired BighornCenter, an industrial rental property for $2 million and collectsrent from tenants. When Bighorn Center’s value increases to $3million, Jumbo refinances the debt and distributes $500,000 to bothRod and Tom. Rod and Tom treat the $500,000 as ordinary incomesubject to a 39.6% tax rate.

3.( T or F ) A gain resulting from the sale of REIT shares whenthat REIT is domestically controlled will not result in any U.S.federal income tax withholding for non-U.S. holders of the REITstock.

4.( T or F ) A general partnership can be taxed as a corporationif so elected under the check the box rules.

5.( T or F ) An individual investor can own 100% of a REIT.

6.( T or F ) Since dividends are not UBTI, a tax exempt investorwill not have UBTI on dividend income when debt is used to purchasethe stock that paid the dividend.

7.(T or F) An individual, who qualifies as a real estateprofessional, can treat a particular rental real estate activity asnon-passive even when that individual does not materiallyparticipate in the real estate activity.

8.(T or F) Withholding tax to non-US investors on interestincome and dividends may be reduced under the terms of atreaty.

9. Assume a building, owned by a REIT, increases invalue and the REIT that owns it sells the building for $120 millionand then makes a capital gain distribution to its shareholders.Which of the following is true regarding a U.S. individualinvestor's tax treatment:

A. The gain on the sale will be taxed at the ordinary income taxrate.

B. The gain on the sale will be taxed at the capital gain taxrate.

C. There is no tax on the net gain at the shareholder level.

D. The tax treatment is the same for the US investor as it isfor the foreign investor.

E. None of the above.

11. Provide the tax that would be applied for each ofthe following:

1. Withholding tax on passive-typeincome (interest, dividends, etc..) for non-US investors withrespect to US source income. _______________.

2. Tax imposed on a foreigncorporation based on a deemed distribution of US branchoperations____________________.

3. Withholding tax on US businessincome income that is effectively connected with a United Statestrade or business. ______________.

13. Which of the following would cause the largestproblem for an individual who wants to be taxed as a real estateprofessional (which one would be the most difficult to overcome ifan individual wanted to be treated as a real estateprofessional)?

A. The individual owns only rental real estate properties andspends all of his/her time managing them.
B. The individual works for herself as a commissioned real estatebroker and invests in one rental property on the side.

C. The individual works full time for a company that is activein a real estate trade or business (periodically requiringovertime) but has no ownership in the company.

D. The individual owns and operates a hotel where she spends2,000 hours per year and she also invests in a small portfolio ofrental real estate properties.

E. None of the above would cause problems for an individual tobe classified as a real estate professional.

14. What are the highest tax rates for each of thefollowing scenarios?

____. Operating income from a hotel earned by a foreigncorporation (excluding branch profits tax)

____. Interest income earned by a foreign corporationfrom a US borrower

____. Net rental income earned by an U.S. individual(exclude the passthrough deduction)

____. Capital gain earned by an U.S.individual

____. Interest income earned by a U.S.corporation

____. Capital gain earned by an U.S.corporation

____. Depreciation recapture on the sale of U.S. realestate (Section 1250 property) for an individual

____. Depreciation recapture on the sale of U.S. realestate (Section 1245 property) for an individual

15. Identify the following as "ECI" (effectivelyconnected income) or "Not ECI" (not effectively connected income)if earned by a foreign person:

________Rental income from an actively managed storage center inFlorida

________ Interest income from loans to non-U.S. corporateborrowers.

________ A gain on the sale of a shopping center located inBermuda.

1. Jim, a US individual who qualifies as a real estateprofessional, purchases a certain rental real estate property in2014 and leases it out producing a taxable loss each year from2014-2017. Jim has no other passive income during any of theseyears. He sells the real estate in 2017 at a gain. Jimcan deduct the taxable losses as ordinary deductions generated fromher rental activity in 2017, the year that he sold the rental realestate, and will recognize capital gain income on the sale underSection 1231.

True False

2. Passive losses that are limited on an individual’sincome tax return in one year can be carried forward and deductedin future tax years.

True False

3. When condominiums are sold in the ordinary course ofbusiness by an individual, the income earned from the sale of thecondo will be taxed as the capital gain tax rate.

True False

4. Jane holds land with a tax basis of$100,000, but a fair market value of $500,000 (the land appreciatedover several years). Jane donates the land to a qualifiedcharitable organization. Jane must recognize the $400,000 gain andwill be allowed to take a $500,000 charitable deduction for thevalue of the contribution.

True False

5. The requirements to treat a transaction as anontaxable Section 1031 exchange includes that the property must beheld for investment, for productive use in a trade or business oras dealer property held for sale to customers in the ordinarycourse of a trade or business.

True False

6. When property is inherited, the tax basis carriesover to the heirs.

True False

1. ( T or F ) Since dividends are not UBTI, a tax exemptinvestor will not have UBTI on dividend income when debt is used topurchase the stock that paid the dividend.

2. (T or F) An individual, who qualifies as a real estateprofessional, can treat a particular rental real estate activity asnon-passive even when that individual does not materiallyparticipate in the real estate activity.

3. (T or F) Withholding tax to non-US investors on interestincome and dividends may be reduced under the terms of atreaty.

4. Assume a building, owned by a REIT, increases in value andthe REIT that owns it sells the building for $120 million and thenmakes a capital gain distribution to its shareholders. Which of thefollowing is true regarding a U.S. individual investor's taxtreatment:

A. The gain on the sale will be taxed at the ordinary income taxrate.

B. The gain on the sale will be taxed at the capital gain taxrate.

C. There is no tax on the net gain at the shareholder level.

D. The tax treatment is the same for the US investor as it isfor the foreign investor. E. None of the above.

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