Gimme the tax facts

Unless you are also an accountant, you should not be giving clients tax advice. That doesn’t mean you shouldn’t be able to discuss the tax advantages of homeownership, though. Here are some questions to see how much you know about deductions and capital gains associated with buying, selling, and owning a home.

The answer follows each question, so scroll slowly if you wish to read a question before revealing the answer.

1. True or false? A person can deduct mortgage interest for his primary residence and a vacation residence in the same year.
   
   
   True. The second home must not be rented more than a certain number of days and the total amount of the mortgages must not exceed $1 million.

 

2. True or false? FHA mortgage insurance premiums are deductible.
   
   
   False.

 

3. True or false? A person who paid 2001 real estate taxes in January 2002 and paid 2002 real estate taxes in December 2002 can deduct both years’ tax payments from his 2002 income tax.
   
   
   True.

 

4. True or false? For income-tax purposes, the buyer is considered to have paid real estate taxes on the property starting on the date of purchase even if the seller actually pays the entire amount of tax for the year.
   
   
   True.

 

5. True or false? If a seller pays points for the buyer, the buyer cannot deduct the points from his taxes.
   
   
   False.

 

6. True or false? The total points paid for a mortgage to buy a home can be deducted in the first year.
   
   
   True, as long as certain criteria are met.

 

7. True or false? The total points paid to refinance a mortgage can be deducted in the first year.
   
   
   False.

 

8. True or false? Homeowner-association fees for your primary residence are deductible.
   
   
   False.

 

9. True or false? To exclude the gain from the sale of a principal residence, a homeowner must own his home for five years and have used it as his principal residence the last two years.
   
   
   False. The homeowner must own the home and use it as a principal residence for two of the five years before the sale. (There are some exceptions.)

 

10. True or false? The $250,000 exclusion ($500,000 for married couples filing jointly) of capital gain on the sale of a principal residence can only be claimed once in a taxpayer’s lifetime.
    
    
    False.

Note: Questions dealing with deductions assume that the taxpayer itemizes deductions and does not take the standard deduction.

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