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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 11
Answers for Activity 3: Name That Tax, or How Fast Can You Calculate

Use these calculations to help participants arrive at the right answers to each scenario.

Scenario 1
a. What is the Reiners’ basis in their home at the time of sale?

Initial purchase price of home:	$125,000
	1,200
PLUS
Additions to basis
Patio (capital improvement)	1,200
New roof (capital improvement)	2,000
New furnace (capital improvement)	1,800
Real estate commission	9,480
Attorney's fee for closing	350
Recording fees	1,300

MINUS
Reductions to basis
Energy rebate from utility	200

Adjusted basis at time of sale	$140,930

Possible errors: The exterior painting is a repair; only capital improvements may be factored into the basis. Property taxes and mortgage payments may be deducted as expenses, but do not apply to basis.

b. What capital gains did the Reiners realize on the house?
Sale price of house	$158,000

MINUS
Adjusted basis at time of sale	$140,930
Capital gain	$ 17,070

c. What are the Reiners tax liabilities on this capital gain?
Because they have owned and lived in the property for more than two years, the Reiners are entitled to a capital gains exemption of $500,000 (for a married couple). They have no tax liability.

Scenario 2:
a. How much in expense deductions are the Williams entitled to on their 2000 federal tax return?

Mortgage interest	$5,000
Mortgage late fee	75
Points	2,000

Total deductions	$7,075

Although real estate taxes can be deducted as expenses for income tax purposes, they cannot be deducted until the year they are actually paid. Since taxes were not paid until 2001, the Williams are not eligible to deduct the amounts they deposited.

b. Based on this scenario, how much can the Williams add to the basis of their home?

Attorney's fees	$500
Title insurance	125
Water heater	600

Total additions to basis	$1,225

Possible error: Neither the appraisal fee nor the painting qualify as either an expense or an addition to basis.

Scenario 3
a. What is the Housers basis in their home?

Initial purchase of house	$25,000

PLUS
Additions to basis
Major renovation	35,000
Pave driveway	1,000
Air conditioning	1,500
Real estate commission	17,500
Closing costs	3,600
*Repaint house	1,400
Landscaping	900
Carpet replacement	2,300

Total adjusted basis:	$88,200

*This item may be added to basis because the work was done within 90 days of the sale.

b. What were their capital gains on the sale?

Sale price of house	$350,000

MINUS	88,200

Capital gains realized	$261,800

c. What are their tax liabilities for the sale?
None. Because the Housers are a married couple filing joint, their combined capital-gains exclusion is $500,000. If the house were owned by only one person, the exemption would be only $250,000 and the owner would owe capital-gains taxes on $11,800

Component 12: Other Resources >

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