 |  | SALES MEETING TOOL KIT: REAL ESTATE TAXES 101 | |
|  Real Estate Taxes 101, Introduction Component 1: Facilitator Talking Points Component 2: Real Estate Taxes 101 Meeting Agenda Component 3: Activity 1, Common Real Estate Tax Mistakes Quiz Component 4: Answer Sheet for Activity 1, Real Estate Tax Mistakes Component 5: Handout 1, What Can You Deduct When You Own a Home? Component 6: Activity 2, What Tax Deductions Mean to the Homeowner Component 7: Handout 2, What’s Your Real Gain? Component 8: Handout 3, A Basis Worksheet Component 9: Handout 4, Improvement vs. Repair Component 10: Activity 3, Name That Tax, or How Fast Can You Calculate Component 11: Answers for Activity 3, Name That Tax, or How Fast Can You Calculate Component 12: Other Resources | Component 10 Activity 3: Name That Tax, or How Fast Can You Calculate Calculate the answers to the tax questions buyers and sellers might ask in each scenario. Scenario 1: Bob and Sally Reiner bought their home five years ago for $125,000 and spent $1,200 in closing costs and $1,250 in points to acquire their loan. Their annual real estate taxes are $1,000 a year and they pay a yearly fee of $50 to the homeowners association. During the time they have lived there, the couple has added a stone patio to the back of the house ($1,200), painted the exterior of the house ($850), and put a new roof on the house ($2,000). They also installed a new furnace ($1,800), which entitled them to a $200 energy conservation rebate from their utility. They have just sold the house to the Levinsons for $158,000 and paid a commission of $9,480. The Reiners paid their attorney $350 to prepare documents for closing and paid $1,300 in recording fees and transfer taxes. They used $96,000 of the money they received to pay off their existing mortgage. a. What is the Reiners’ basis in their home at the time of sale? b. What capital gains did the Reiners realize on the house? c. What are the Reiners tax liabilities on this capital gain? Scenario 2: Blanche and Tom Williams bought a home in April 2000 and are now getting the records together to pay their 2000 income tax. In buying the house, the Williams’s spent $2,000 on points (which they will take as a single deduction), $500 on attorney’s fees for the closing, $125 for title insurance, and $250 for an appraisal required by their lender. They spent $600 on a new water heater and had two rooms repainted for $200. During their first partial year of ownership, they paid $5,000 in mortgage interest, plus one late fee of $75, and deposited $1500 in their tax escrow account. On their behalf, the bank made the first tax payment due in January 2001 of $1,020. a. How much in expense deductions are the Williams entitled to on their 2000 federal tax return? b. What costs item can they add to the basis of their home? Scenario 3: John and Marcia Houser bought their home 30 years ago for $25,000. Fifteen years ago, the couple did a major renovation of the house, which cost a total of $35,000. Since they are now over 65 and retired, the Housers haven’t done much to keep their house up, although they did repave their driveway two years ago ($1,000) and install air conditioning ($1,500). When they listed their home with Jeff Vesos, he suggests repainting the house inside and out ($1,400), adding new landscaping ($900), and replacing the carpeting on the first floor ($2,300). Jeff’s strategy proved correct; just 55 days after the work was completed, the Housers closed on a sale and receive $350,000 for their home. Jeff received a commission of $17,500. The Housers paid other closing costs—attorney’s fees and recording fees of $3,600. a. What is the Housers basis in their home? b. What were their capital gains on the sale? c. What are their tax liabilities for the sale? Component 11: Answers for Name that Tax > |