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?

(c) Will Irving receive a Form 1099-S and have to report the sale of the house on his tax return?  Yes or No.