SIE Understanding Products and Their Risks Question 75: Answer and Explanation

Question: 75

Which of the following is true of real estate direct participation programs?

• A. In a real estate limited partnership, each limited partner must contribute at least one percent of the total capital.
• B. In both a limited partnership and a Tenant in Common arrangement, all participants provide a guarantee on every loan.
• C. For limited partnerships, the IRS code limits the pass-through tax effects to fifty percent of the total financial results.
• D. For a TIC, the transaction must be completed in no more than 180 days.

Correct Answer: D

Explanation:

D: Choice D is correct because the IRS code requires that the TIC transaction be completed by the earlier of the following 180 days after the initial sale, or by the last date for filing an income tax return for the year in which the transaction occurred. Choice A is incorrect because a limited partner's ownership is not required to be a certain amount. However, the general partner must provide at least one percent of the capital. Choice B is incorrect because in a limited partnership, only the general partner assumes obligation for a loan. In a TIC transaction, each participant signs every mortgage. Each TIC transaction is unique, and in some cases a mortgage company could require a personal obligation in case specific types of actions are taken, such as illegal behavior by the participants. Choice C is incorrect because the IRS code allows the entire financial results to flow through to the participants.