Florida Real Estate Broker Exam — All Questions

A married couple filing jointly who owned and occupied a Florida home as their principal residence for 2 of the last 5 years may generally exclude gain up to:

• a.$250,000
• b.$500,000✓
• c.$300,000
• d.$1,000,000

Internal Revenue Code section 121 allows a taxpayer to exclude gain on the sale of a principal residence if the property was owned and used as the principal residence for at least 2 of the 5 years preceding the sale. The exclusion is $250,000 for a single filer and $500,000 for a married couple filing jointly, and it may generally be claimed once every two years. The exclusion applies to gain rather than to sale proceeds, so a seller computes gain by subtracting the adjusted basis from the amount realized. Gain above the exclusion is taxed, ordinarily at long-term capital gain rates for property held more than a year.

Residential rental property placed in service today is depreciated for federal income tax purposes over:

• a.39 years
• b.31.5 years
• c.15 years
• d.27.5 years✓

Under the modified accelerated cost recovery system, residential rental property is depreciated straight-line over 27.5 years while nonresidential real property uses 39 years, so the classification of the building drives the annual deduction. Only the improvements are depreciable: land is never depreciated, so the investor must allocate the purchase price between land and building. The 31.5-year figure is a historical recovery period for nonresidential property that predates current law, and 15 years applies to certain land improvements rather than to the building itself. Depreciation reduces adjusted basis, which increases the gain recognized on a later sale.

In a delayed exchange under Internal Revenue Code section 1031, the replacement property must be identified within:

• a.45 days, and the exchange completed within 180 days✓
• b.30 days, and the exchange completed within 180 days
• c.45 days, and the exchange completed within 90 days
• d.60 days, and the exchange completed within 180 days

A delayed like-kind exchange runs on two deadlines that both start on the date the relinquished property transfers: the taxpayer must identify replacement property in writing within 45 days, and must receive the replacement property within 180 days or by the due date of the tax return for that year, whichever is earlier. The periods run concurrently rather than consecutively, so the identification period is part of the 180 days. Since the 2017 Tax Cuts and Jobs Act, section 1031 applies only to real property held for productive use in a trade or business or for investment, not to personal property.

Under FIRPTA, a buyer purchasing United States real property from a foreign seller must generally withhold:

• a.10 percent of the amount realized
• b.20 percent of the amount realized
• c.25 percent of the amount realized
• d.15 percent of the amount realized✓

The Foreign Investment in Real Property Tax Act makes the buyer, as transferee, responsible for withholding on the purchase of a United States real property interest from a foreign person, and the general rate is 15 percent of the amount realized, which is normally the gross sales price rather than the seller's gain. Reduced rates or exemptions can apply for certain residences within stated price bands where the buyer will use the property as a residence, and a seller may apply for a withholding certificate based on actual expected tax. The obligation falls on the buyer, so a Florida licensee should raise the issue early when a seller may be foreign.

An investor's adjusted basis in a Florida rental property equals the original cost:

• a.Plus capital improvements, minus depreciation taken✓
• b.Minus capital improvements, minus depreciation taken
• c.Plus annual operating expenses, minus depreciation taken
• d.Plus capital improvements, plus depreciation taken

Adjusted basis starts with the original cost of acquisition, is increased by capital improvements that add value or prolong useful life, and is decreased by depreciation deductions taken over the holding period. The figure matters because gain on sale is the amount realized minus adjusted basis, so years of depreciation deductions enlarge the eventual gain, a result often described as depreciation recapture. Operating expenses such as utilities, insurance, and routine repairs are deducted annually against rental income and do not adjust basis, which is the distinction between a repair and a capital improvement.