30 through december 31 the tax for the real property

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30 through December 31. The tax for the real property tax year, January 1 through December 31, is $3,650. Assuming that this is not a leap year the portion of the real property tax treated as imposed upon Sara, the seller, is $1,800 [(180/ 365) × $3,650, January 1 through June 29], and $1 ,850 of the tax [(185/ 365) × $3,650, June 30 through December 31] is treated as imposed upon Bob, the buyer If the actual real estate taxes are not prorated between the buyer and seller as part of the purchase agreement, adjustments are required. As a result, the amount of real estate tax that is apportioned to the seller (for Federal income tax purposes) and paid by the buyer is added to the buyer's basis. The seller must increase the amount realized on the sale by the same amount.
Ex. Seth sells real estate on October 3 for $400,000. The buyer, Barbara, pays the real estate taxes of $3,650 for the calendar year, which is the real estate property tax year. Assuming that this is not a leap year, $2,750 (for 275 days) of the real estate taxes is apportioned to and is deductible by the seller, Seth, and $900 (for 90 days) of the taxes is deductible by Barbara. Barbara has, in effect, paid Seth’s real estate taxes of $2,750 and has therefore paid $402,750 for the property. Barbara’s basis is increased to $402,750, and the amount realized by Seth from the sale is increased to $402,750. Interest (10-3) Personal (consumer) interest is not deductible. This includes credit card interest, interest on car loans, and other types of personal interest. However, interest on qualified student loans, qualified residence (home mortgage) interest, and investment interest are deductible, subject to the limits discussed on the following pages. Allowed and Disallowed Items (10-3a) The Supreme Court has defined interest as compensation for the use of money. The general rule permits a deduction for interest paid or accrued within the taxable year on indebtedness. Interest on Qualified Student Loans Taxpayers who pay interest on a qualified student loan may be able to deduct the interest as a deduction for AGI. The deduction is allowed if the proceeds of the loan are used to pay qualified education expenses. These payments must be made to qualified educational institutions The maximum annt1al deduction for qualified student loan interest is $2,500. However, in 2019, the deduction is phased ot1t for taxpayers with modified AGI (MAGI) between $70,000 and $85,000 ($140,000 and $170,000 on joint rett1rns). The interest expense dedt1ction is phased out by applying the following formula: The deduction is not allowed for taxpayers who are claimed as dependents or for married taxpayers filing separately. Ex. In 2019, Curt and Rita, who are married and fi le a joint return, paid $3,000 of interest on a qualified student loan. Their MAGI was $147,500. Their maximum potential deduction for qualified student loan interest is $2,500, but it must be reduced by $625 as a result of the phaseout rules. $2,500 interest x $147,500 (MAGI) - $140,000 (AGI phaseout)/$30,000 (phaseout range) = $625 reduction Curt and Rita are allowed a student loan interest deduction of $1,875 ($2,500 maximum deduction - $6725 reduction = $1,875 deduction for AGI). Qualified Residence Interest

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