The Running Realtor

A blend of ramblings about Real Estate & Running around New Haven County and the Connecticut Shoreline

Help Me Understand My Errors with 1031 Tax-Free Exchanges

Well.... Last week I was Tee'd Off at the apparent incompetence of the On-Line Continuing Education that is required to renew my Real Estate License but after a week of delaying another afternoon of agony I decided to take my final course today.

My choice was to learn about 1031 Tax-Free Exchanges.  Math has always been one of my strong subjects so on the list of educational courses I ASSUMED this course would be both beneficial and relatively pain free!  I'm not quite half way through the material but I am thoroughly disgusted.  Will someone PLEASE point out what I am not understanding that caused me to FAIL the chaper two exam.  After misunderstanding some questions on the first exam I decided to move on and not over analyze why I was wrong.  The second exam has pissed me off....

Below the summary shows I failed by getting two questions WRONG...

 

Here is Question 1 for which my answer was $13,500.   Basically it appears to be pretty simple math but there is clearly something wrong.  Looking at the word problem I am told of a Capital Gain of 135,000 but the seller offered financing and only received 45,000 in the first year.  Taxes would be 15% on the gain in the year is is received... So...  Am I wrong or is the test answer WRONG?  They say the ANSWER is 36,000 but go on to justify how they arrive at 13,500  ( my answer )  Can some one show me the light?

 

 

Below is the review of Question 7 that is a little more subjective to interpretation but equally disturbing.  Keep in mind the yellowish portions does not show up on the test.  The question states  "When an owner sells a property on installment, taxes are paid on the ____________"   Knowing from the reading assignment that capital gains are taxed at 15% and interest income from installment sales would be taxed as unearned income in the year the money is received I had no doubt my answer was correct.... "portion of capital gain and interest received in each year" WRONG!

 

I don't think I'm wrong on either of these questions and would welcome any feedback to set me straight if I have made an error.   Back to my aggravation for another few hours....

 

 

Comment balloon 14 commentsNo Longer Active • May 12 2008 03:37PM
Help Me Understand My Errors with 1031 Tax-Free Exchanges
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