Real Estate Math
A property is sold using a 1031 exchange. The relinquished property sold for $800,000 with a cost basis of $300,000. The replacement property costs $950,000. How much capital gain is deferred?
A$150,000
B$500,000✓ Correct
C$300,000
D$800,000
Explanation
In a 1031 exchange, the capital gain ($800,000 − $300,000 = $500,000) is deferred when the replacement property value meets or exceeds the relinquished property value. The $950,000 replacement exceeds $800,000, so the full $500,000 gain is deferred.
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Key Terms to Know
1031 Exchange
A tax-deferred exchange allowing investors to sell one investment property and reinvest proceeds in a like-kind property while deferring capital gains taxes.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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