CMPS Mortgage and Tax Strategies 4

Question 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?

Accepted Answer

$0 because their AGI exceeds $150,000

Answer

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.

Question 2

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

Accepted Answer

Bunching itemized deductions

Answer

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.

Question 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?

Accepted Answer

Investment interest deduction is limited to net investment income

Answer

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.

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

Property tax deduction

Answer

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.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS Mortgage and Tax Strategies 4