California Real Estate Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the California Real Estate Exam. Study with flashcards and multiple-choice questions, each question includes hints and explanations. Get ready to ace your exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

Adam purchased a residence for $180,000 and made $20,750 in capital improvements. He sold the house for $200,000 and moved into an apartment on a 3-year lease. What kind of tax effect would this sale have?

Capital gain of $750
Capital loss of $750
Capital loss of one-half of the $750
No effect

The correct answer is: Capital gain of $750

This sale would have a tax effect of a capital gain of $750. This is because the capital improvements of $20,750 would increase the cost basis of the property to $200,750. Therefore, when Adam sells the house for $200,000, the proceeds would be lower than the cost basis, resulting in a capital gain of $750. The other options are incorrect because B and C assume that the property was sold at a loss, which is not the case. Option D is not correct because there is a capital gain of $750, even though it may not be subject to taxes due to the eligibility of excluding capital gains from a primary residence.