Taxes
Figuring Your Basis, Get It Right, Reduce Your Taxes, Get It Wrong and Pay Much Higher Taxes
The scenario is as follows
Ed purchased a house on an acre of land from Ruth. Prior to the purchase Ed has been renting the house from Ruth for $1000 per month. Ed paid the following:
$100,000 in loan proceeds to Ruth
$2,000 in points to the bank
$1,000 in real estate taxes
$1,000 in pas due rent to Ruth
$1,000 in closing costs to the bank for legal recording, title insurance and survey fees
$1,000 in escrowed Real Estate taxes to the bank
What is Ed's "basis" in the house and land purchased from Ruth?
A. $100,000
B. $102,000
C. $104,000
D. $106,000
AND Now, Ed decides to sell the house and the land and receives $360,000 for the property 5 years later. How much of his gain will he have to pay taxes on? (Ed is single and lets say he did not invest any more money into the property)
A. 0
B. $4,000
C. $8,000
D. $12,000
Note: If you sold your house and you miss this question, you probably should NOT be doing your own Taxes. Contact your Tax Professional as soon as possible. In fact it would have been best to contact your Tax Professional "BEFORE" you sold your property, because if Ed didn't live in the property for 3 of the last 5 years that he owned the property, then he would be exposed to Capital Gains Taxes on $258,000.
The correct answers based upon Tax Codes; are B and C
Congress votes in over 100 new Tax Laws every year. The software programs do an excellent job of implementing these changes, however, I am not sure how well they do with finding the loopholes.
Cassandra Ingraham is a Tax Accountant and Instructor for Basic Tax Classes in the San Francisco Bay Area. During the balance of the year she can be found at http://www.taxeswilltravel.com providing Formal Introductions to Lenders for Accounts Receivable Funding (Factoring) and Purchase Order Funding. Individuals with Tax issues can find dozens of self-help tax articles at: http://taxeswilltravel.com/article_index.htm |
Cassandra Ingraham
Tags: taxes, capital gains, reduce your taxes, lower your taxes, sell your home, basis, figuring, Similar articles
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