CMPS Mortgage and Tax Strategies 5

Question 1

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

Accepted Answer

Receiving cash boot as part of the exchange

Answer

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.

Question 2

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?

Accepted Answer

$375,000 each

Answer

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.

Question 3

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?

Accepted Answer

Higher deductible interest since no principal is paid

Answer

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.

Question 4

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?

Accepted Answer

$100,000 (donor's original basis)

Answer

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.

Question 5

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?

Accepted Answer

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

Answer

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.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS Mortgage and Tax Strategies 5