Mortgage and Tax Strategies Flashcards

A taxpayer uses a 1031 exchange to defer gain on a rental property. Which of the following would disqualify the exchange?

Answer: Receiving cash boot as part of the exchange

Receiving cash or non-like-kind property (boot) in a 1031 exchange makes the boot amount taxable, though any remaining deferred gain on property exchanged is still deferred.

A couple files married filing separately (MFS). What is their mortgage interest deduction limit for acquisition debt on a home originated after December 15, 2017?

Answer: $375,000 each

Married filing separately taxpayers must split the $750,000 acquisition debt limit equally, so each spouse may only claim interest on up to $375,000 of acquisition debt.

A CMPS recommends an interest-only mortgage to a client who wants to maximize cash flow. What is the primary tax implication compared to a fully amortizing loan in year one?

Answer: Higher deductible interest since no principal is paid

With an interest-only loan, 100% of the payment is interest in early years, maximizing the deductible interest amount compared to an amortizing loan where a growing portion is non-deductible principal.

A client wants to gift their home to their child to remove it from their estate. If the home has a basis of $100,000 and FMV of $600,000, what is the child's carryover basis?

Answer: $100,000 (donor's original basis)

A gift carries over the donor's original basis to the recipient, meaning the child inherits the $100,000 basis and would owe capital gains tax on $500,000 of appreciation if they sell.

A client pays $3,000 in points on a $300,000 purchase mortgage for their primary home in December. How should points be treated for that tax year?

Answer: Deducted in full in the year of payment if IRS requirements are met

Points paid on a purchase mortgage for a primary residence are generally fully deductible in the year paid, provided they meet IRS criteria including being a normal business practice in the area and computed as a percentage of the loan.

Under the Net Investment Income Tax (NIIT), which taxpayers are subject to the 3.8% surtax on net investment income?

Answer: Single filers with MAGI above $200,000 and joint filers above $250,000

The 3.8% NIIT applies to the lesser of net investment income or the excess of MAGI over the thresholds: $200,000 (single) and $250,000 (married filing jointly).

A CMPS client asks about the tax treatment of private mortgage insurance (PMI) premiums. What is the current status of the PMI deduction?

Answer: Extended annually by Congress; check current-year law for availability and AGI phase-outs

The PMI deduction has historically been a temporary provision that Congress must extend each year, and it phases out for higher-income taxpayers, so its availability depends on current-year legislation.