CMPS - Certified Mortgage Planning Specialist Mortgage and Tax Strategies Questions and Answers

Question 1

A married couple sells their primary residence for a $600,000 profit. They have owned and lived in the home for the past 10 years. How much of the capital gain from the sale can they exclude from their taxable income?

Accepted Answer

$500,000

Answer

According to Section 121 of the Internal Revenue Code, married couples filing jointly can exclude up to $500,000 of capital gains from the sale of their primary residence. To qualify, they must have owned and used the home as their main residence for at least two of the five years preceding the sale. Since this couple meets the criteria, they can exclude $500,000 of the profit, leaving $100,000 as a taxable capital gain.

Question 2

Under the current tax law (post-December 15, 2017), what is the maximum amount of mortgage debt on which a homeowner can deduct interest for a primary residence?

Accepted Answer

$750,000

Answer

For mortgages taken out after December 15, 2017, homeowners can deduct the interest paid on up to $750,000 of mortgage debt used to buy, build, or substantially improve their primary or secondary residence. For married taxpayers filing separately, the limit is $375,000. Mortgages taken out on or before December 15, 2017, are subject to the previous limit of $1 million.

Question 3

Which of the following is a requirement for a homeowner to be able to deduct the interest paid on a Home Equity Line of Credit (HELOC)?

Accepted Answer

The funds must be used to buy, build, or substantially improve the home securing the loan.

Answer

To deduct the interest on a HELOC, the IRS requires that the loan proceeds be used to "buy, build, or substantially improve" the taxpayer's home that secures the loan. If the funds are used for other personal expenses, such as paying off credit card debt or taking a vacation, the interest is not deductible.

Question 4

A client is purchasing a home and their lender offers them the option to pay 'points' at closing. From a tax perspective, what is the primary benefit of paying these points?

Accepted Answer

They are fully deductible in the year paid, reducing taxable income.

Answer

Mortgage points, which are a form of prepaid interest, are generally fully deductible in the year they are paid if the loan is for the purchase of a primary residence. This deduction lowers the homeowner's taxable income for that year. Points paid on a refinanced loan, however, must be deducted over the life of the loan.

Question 5

A real estate investor owns a residential rental property. Which of the following expenses related to this property is NOT typically tax-deductible?

Accepted Answer

The principal portion of the mortgage payments.

Answer

For investment properties, while expenses such as mortgage interest, property taxes, repairs, and maintenance are deductible, the principal portion of the mortgage payment is not. Principal payments are considered a return of capital and increase the owner's equity in the property, rather than being an operating expense.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS - Certified Mortgage Planning Specialist Mortgage and Tax Strategies Questions and Answers