Chapter 6 - Property Taxes and Income Taxes Selected end of chapter solutions and/or directions to answers: 1. Page 102-103 of your text. Example 6.22. Page 104 of your text.3. Property taxes are assessed based on the budget needs of the taxing authority. Tax bills are typically based on assessed property values. Example 6.1, pages 98-99. 5. Only business property may be depreciated.7. An expense must be capitalized over a period of years if it increases the size or life of an investment property.8. Capitalize and expense when higher marginal tax rates are expected in the future. Example6.310. Allocate depreciable and non-depreciable portions of a property purchase based on relative tax assessments (ie. If a $1million purchase is of a property assessed for $500,000,with 60% of the assessment based on land, and 40% on the building, a similar “blend” could be used by the $1 million buyer. If a property is fully developed, with no land available for expansion, an 80/20 rule is implied by the IRS, but NOT AFFIRMED. It suggests we can depreciate 80% of the price of a fully developed piece of land.) Example 6.9. Page 120. Selected chapter 6 objective practice questions: 1. Depreciation, or cost recovery, as a deduction is allowed on which of the following assets? (A) land used for business purposes (B) a personal residence (C) a business computer used for personal purposes (D) a personal car used for business purposes 2. The total amount of taxes assessed on real property is determined by the taxing authority's (A) budget requirements (B) estimate of property subject to tax (C) annual appraisal of all property (D) assessed value of taxable property 3. A depreciation calculation method that allows equal depreciation over the year’s of the asset’s life is called a: (A) component method (B) declining balance method (C) straight-line method (D) salvage value method 4. Under current depreciation rules, the number of years over a real estate asset can be depreciated dependsprimarily upon its: (A) assigned cost recovery class (B) salvage value at the end of its useful life (C) classification as residential or non-residential property(D) days of usage each tax year 5. The 1986 Tax Act requires depreciation for non-residential property to be taken over a period of (A) 19 years (B) 27.5 years(C) 39 years (D) its useful life to the taxpayer 6. When an existing building is acquired, an allocation must be made between the value of the land and the value of the building because (A) land is depreciable at lesser rates (B) capital gain attributed to the land is not subject to tax at time of disposition (C) only the building is eligible for depreciation (D) the land may exceed the building in value 7. Personal property is eligible for depreciation deductions only if (A) it has a life in excess of five years (B) it is purchased in the first quarter of the tax year (C) it meets ADR Guideline requirements (D) it is used for business purposes 8. Something that maintains a property but does not increase its useful life is identified by the IRS as (A) an improvement (B) a replacement (C) an addition (D) a repair 9. For tax purposes, capital gain is the difference between the property's adjusted basis of value and the:(A) initial basis of value (B) pay-off of the mortgage loan balance (C) realized or net selling price (D) market