Practice Test Geeks(CMPS) Certified Mortgage Planning Specialist Practice Test
← All CMPS Flashcard Decks

Mortgage and Tax Strategies Flashcards

7 cards from real CMPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Mortgage and Tax Strategies flashcards as text

  1. A physician earns $400,000 AGI and has $10,000 in rental losses from a leveraged rental property. Under passive activity rules, how much can they deduct?

    Answer: $0 because their AGI exceeds $150,000

    The $25,000 rental real estate special allowance phases out completely once AGI exceeds $150,000, so a taxpayer with $400,000 AGI cannot use the allowance and losses are suspended.

  2. Which strategy allows a homeowner to effectively time tax deductions by prepaying January's mortgage payment in December of the current tax year?

    Answer: Bunching itemized deductions

    Bunching involves timing deductible payments—such as prepaying mortgage interest—into a single tax year to exceed the standard deduction threshold and maximize itemized deductions.

  3. A client owns a home with a $300,000 mortgage and wants to use equity to invest in the stock market. From a tax planning perspective, why is this strategy risky?

    Answer: Investment interest deduction is limited to net investment income

    Home equity proceeds used for investments generate interest that may only be deductible as investment interest under IRC §163(d), limited to net investment income for the year.

  4. A client in a high-tax state uses a mortgage credit certificate (MCC). How does an MCC differ from the mortgage interest deduction?

    Answer: MCC is a dollar-for-dollar tax credit; deduction reduces income before tax calculation

    An MCC provides a direct federal income tax credit (reducing tax owed dollar-for-dollar) equal to a percentage of annual mortgage interest, making it more valuable than a deduction for most borrowers.

  5. Under the alternative minimum tax (AMT), which housing-related deduction is specifically disallowed for AMT calculation purposes?

    Answer: Property tax deduction

    State and local property taxes are deductible for regular tax purposes but are entirely disallowed as an AMT preference item, which can expose high-property-tax homeowners to AMT.

  6. A borrower's mortgage was originated in 2015 when rates were 4%. Current rates are 7%. From a tax-planning perspective, what is the 'embedded tax value' of the below-market mortgage?

    Answer: The lower rate means less interest to deduct, reducing any itemized deduction tax shield

    A below-market-rate mortgage generates less mortgage interest, which reduces the tax deduction benefit for itemizing borrowers, effectively increasing the after-tax cost of holding the old loan.

  7. A client sells a rental property for a $100,000 gain and has $30,000 of accumulated depreciation. How is the depreciation recapture taxed?

    Answer: At ordinary income rates up to 25% under Section 1250 rules

    Unrecaptured Section 1250 depreciation on real property is taxed at a maximum rate of 25%, which is higher than the preferential long-term capital gains rates.