California Real Estate Practice Exam

Seller "ABLE" recently sold a property for $141,450, which was 15% more than he paid for it. He held the property for two years, during which time his interest expenses were 10% of his purchase price (5% per year). Taxes were $80 per $1,000 of assessed valuation, and the property was assessed at 25% of the original purchase price. Seller's ownership resulted in a net:

1. $1,230 gain

2. $11,070 loss

3. $3,690 gain

4. none of the above

The correct answer is: $1,230 gain

To determine the correct answer, we start by calculating the original purchase price of the property. Since Seller "ABLE" sold the property for $141,450, which represents a 15% increase over the purchase price, we can set up the following equation: Let the purchase price be represented as P. The equation would be: P + 0.15P = $141,450 1.15P = $141,450 P = $141,450 / 1.15 P = $123,000 approximately. Next, we can calculate the interest expenses over the two years. Since the interest is 10% of the purchase price per year, for two years the total interest expenses would be 20% of the purchase price: Total interest = 0.20 * $123,000 = $24,600. Next, we need to calculate the property tax. The property is assessed at 25% of the purchase price: Assessed value = 0.25 * $123,000 = $30,750. The tax rate is $80 per $1,000 of assessed value, therefore: Taxes = (Assessed value / 1,000) * $80 = ($30,