The Running Realtor: Help Me Understand My Errors with 1031 Tax-Free Exchanges

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

Comments

Lesson on 1031 Tax DEFERRED Exchange (there is no tax free!!!!) call an attorney! Thats what I have learned so far I don't even try to understand that. GOOD LUCK!

Posted by Sonja Babic, New Bern NC, PRIME Realty NC, LLC (Sonja Babic/PRIME Realty NC, LLC) over 10 years ago

All I know is after listening to you vent in the other room, I'm not taking this one for a continuing education choice : )

Posted by Sandra Cummings, Real Estate Agent, Guilford Connecticut (William Raveis Real Estate) over 10 years ago

Sonja.... I agree there is no Tax-Free but I am not part of the Real Estate Monopoly that requires these "educational" courses as part of the state licensing requirements.  Having an Attorney or CPA taking my Real Estate test would be UNETHICAL!

Sandra... The choices are limited but from what I have experienced all the electives are equally flawed!

Posted by No Longer Active (Real Estate) over 10 years ago

Dan, I wanted to say that there isn't much logic in that exchange and I would look for different class. Good luck with your test.

Posted by Sonja Babic, New Bern NC, PRIME Realty NC, LLC (Sonja Babic/PRIME Realty NC, LLC) over 10 years ago

Sonja... It's not like I can get my $35 back if I select a different course and I'd most likely run into the same errors just with a different subject.  My point in writing this is to show the flaws of the licensing process.   Incompent test developers and lawmakers require us to go through this so called education every two years yet they cannot even provided the correct answers to allow a computer to grade the test.

Posted by No Longer Active (Real Estate) over 10 years ago

Dan,  Sorry you have to deal with this crap!  After reading this I may have to take a 1031 class myself.  It's been many years and haven't used the info.  But you never know.

Posted by Marc Grossman, GRI, Greater Orlando Real Estate Broker (Marc It Sold!) over 10 years ago

Marc.... I haven't had many people ask about the tax deferred exchanges either but figured since I have to take a few electives I might as well pick something beneficial.  Problem is by the mid-point in the course I was disgusted enough with the lack of quality that I just skimmed thru the second half to get it done!

So what are you doing tomorrow.... Catching up or Passing me out?

Posted by No Longer Active (Real Estate) over 10 years ago

Dan,- As you know I was a tax accountant for 20 years- they are out of their mind!

Posted by Judy Greenberg, Coldwell Banker - Buffalo Grove - Long Grove Homes (Coldwell Banker Long Grove) over 10 years ago

Dan it is to late a night for me to be using up my gray matter (no I am not talking about my hair), but isn't "tee'd off" Tuesday suppose to be tomorrow, or are you just getting a head start :) :)

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago

Judy...  Requiring us to take continuing education courses and tests that the administrators cannot even correctly produce pisses me off... Wonder how many thousands of agents have paid to be frustrated but these substandard "accredited" classes.

George... Yes, I was a day early.... Couldn't finish the course without venting!!!  Now for today's treat I get to send a few hundred bucks to the state for my license renewal.... What a money making racket the bureaucrats have.....

Posted by No Longer Active (Real Estate) over 10 years ago

Dan you have to spend all that money you make on something, so why not give it to everyone's favorite charity the Government ........... LOL

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago

Dan~ there has got to be someone you can read the riot act to about how incompetent the exam is. I would be furious over failing because of some bureaucratic error. 

NJ is the only state that doesn't require CE, although this will probably be changing shortly.  Can't wait.

Posted by Lisa Ryan, Selling Princeton,West Windsor and Montgomery Town (Callaway Henderson Sotheby's International Realty) over 10 years ago

See if you can find Richard Reno's book, "Profitable Real Estate Exchanging and Counseling", if it's still available.

The math indicates this test uses a 26.7% rate of 135k to arrive at their answer, if they use the same procedure to arrive at their answer as you arrived at yours. The self-employment rate is also 15.3% .

Posted by David Saks over 10 years ago

Dan, Math is my worst subject now and forever...maybe you overlooked the word "avoid?" .

Since the largest part of the money is not yet collected he "avoided" a tax hit of $36,000.00.

If I'm wrong don't laugh at me and if I'm right it's only luck! Later in the rain~Deb

PS. I have to take my courses here pretty quick too. yuk.

 

Posted by Deb Brooks (Brooks Prime Properties Wichita Falls Texas) about 10 years ago

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