Property Valuation
An Ohio appraiser is appraising a property for a 1031 exchange. The appraisal is used to determine:
AThe amount of capital gains tax owed
BThe fair market value of the relinquished property for exchange identification and documentation purposes✓ Correct
CWhether the exchange qualifies for tax deferral
DThe replacement property's future income stream
Explanation
In a 1031 exchange, an appraisal establishes the fair market value of both the relinquished and replacement properties, providing documentation for IRS compliance and ensuring values are established independently.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
1031 ExchangeA 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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Math Concepts
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