Question

1.( T or F ) An individual who directly owns real estate and earns 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 owned by 50% by two individuals, Rod and Tom. Jumbo LLC acquired Bighorn Center, an industrial rental property for $2 million and collects rent from tenants. When Bighorn Center’s value increases to $3 million, Jumbo refinances the debt and distributes $500,000 to both Rod and Tom. Rod and Tom treat the $500,000 as ordinary income subject to a 39.6% tax rate.

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

4.( T or F ) A general partnership can be taxed as a corporation if 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 investor will not have UBTI on dividend income when debt is used to purchase the stock that paid the dividend.

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

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

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

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

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

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 is for the foreign investor.

E. None of the above.

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

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

2. Tax imposed on a foreign corporation based on a deemed distribution of US branch operations____________________.

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

13. Which of the following would cause the largest problem for an individual who wants to be taxed as a real estate professional (which one would be the most difficult to overcome if an individual wanted to be treated as a real estate professional)?

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

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

D. The individual owns and operates a hotel where she spends 2,000 hours per year and she also invests in a small portfolio of rental real estate properties.

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

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

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

____. Interest income earned by a foreign corporation from 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. real estate (Section 1250 property) for an individual

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

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

________Rental income from an actively managed storage center in Florida

________ Interest income from loans to non-U.S. corporate borrowers.

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

Answer 1

1. True, under the provisions of new TCJA, An individual who directly owns real estate and earns net rental income for the tax year January 1 – December 31, 2018 will have an effective tax rate of 29.6% on it

2. False, the rate would be 21%

3. False,  Dividends paid by REITs in general are subject to the US withholding rules applicable to dividends paid by any US corporation,

4. True, The check-the-box regulations provide that certain types of organizations are required to be classified as corporations

5. False, REIT must have a minimum of 100 shareholders after its first year as a REIT

*** as you might know, an expert here is allowed to answer initial 4 questions in case of multi questions posted once. I have done 5 though, please repost for the rest. Thanks***