On June 1, the Seller, who is single, listed her home for $300,000 and agreed to pay

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Question:

On June 1, the Seller, who is single, listed her home for $300,000 and agreed to pay a 6% commission to a realtor. The

Buyer offered 10% less than the listed price

and a counteroffer by the seller for the average of the original offer and listed

price was accepted by both parties. The sale closed on August 31 of a 365

-day year.

•

The Buyers paid an earnest money deposit of $3,000.

•

An annual property tax levy of 12

mills is due on Jan. 1 of every year. At the time of closing, the taxes have already been

paid in full to the county for this year by the Seller and are based on a

county

assessed value of $260,000. Property tax

amounts are expected to stay fairly constant over the next few years.

•

Annual homeowner insurance from State Farm cost the Buyers $900 and was paid at closing. Homeowner insurance

premiums are expected to remain fairly constant over the next few years.

•

The Buyer's lender requires escrow cushion re

serves (according to RESPA maximums) for property hazard insurance,

property taxes, and mortgage insurance. Private mortgage insurance is obtained for $170 per month.

•

The settlement or closing fee to Land Title was $900 and was split equally between the Buyer and Seller.

•

The Buyer paid a premium of $1,600 for title insurance.

•

The fee for recording the deed was $50, paid by the Buyer.

•

An appraisal fee of $500 was paid by the Buyer.

•

Termite inspection for $300 was paid by the Seller.

•

The Buyer acquired a $280,000 loan, 30 year

fixed rate loan at 5% annual rate.

Because closing is at month-end, no interest needs to be handled through closing.

•

The Seller's first mortgage balance at closing was $160,000.

•

Closing and possession took place on August 31 of a 365-day year.

The "end-of-day" rule applies for any allocations.

Instructions:

Calculate the following two cash figures. For partial credit, show your work.

(1) Cash paid by Buyer at closing

(2) Cash received by Seller at closing

Question 2:

Suppose that Hilda, a single lady, bought a $150,000 home on 1/1/20 with 10% down, 5% fixed-rate, 30-year, loan of $135,000 (5% rate only after paying 1 discount point). Her marginal tax rate is 24%.

(1) What is the "true" after-tax interest rate, assuming that Hilda itemizes?

Show your work for partial credit.

(2) The first monthly principal/interest payment of $725 includes $563 of interest. What is Hilda's after-tax payment, assuming that Hilda itemizes? Show your work for partial credit.

(3) Interest paid on the loan during 2020 totaled $6,704. The property tax levy was 14 mills, based on the home sale price. Hilda made a tax-deductible charitable contribution to her church of $2,000. Instead of taking the standard deduction, will it be worthwhile for Hilda to itemize deductions in 2020?

Yes or No. Show your work for partial credit.

Question 3:

In 2012, Irving Investor (who is single) bought a home for $100,000 and

paid closing costs of $5,000. In 2013, he finished the

basement at a cost of $25,000. He lived in the home since the date of purchase.

(1) What is Irving's adjusted cost basis in the home? (2) Suppose that Irving sold the house in 2020 for $450,000 and paid a realtor commission of 6% plus other relevant closing costs of $3,000. What is the gain or loss on sale of the house? (3) How much of the gain or loss will be taxable/deductible on his tax return? (4) Will Irving receive a Form 1099-S and have to

report the sale of the house on his tax return?

Yes or No.

(5) Suppose that Irving sold his home for $140,000 instead.

(a) What is the gain or loss on sale?

(b) How much of the gain or loss will be taxable/deductible on his tax return?