On July 1 of year 1, Elaine purchased a new home for $605,000. At the time of th

Question

On July 1 of year 1, Elaine purchased a new home for $605,000. At the time of the purchase, it was estimated that the property tax bill on the home for the year would be $12,100 ($605,000 × 2%). On the settlement statement, Elaine was charged $6,050 for the year in property taxes and the seller was charged $6,050. On December 31, year 1 Elaine discovered that the real property taxes on the home for the year were actually $13,100. Elaine wrote a $13,100 check to the local government to pay the taxes for that calendar year (Elaine was liable for the taxes because she owned the property when they became due). What amount of real property taxes is Elaine allowed to deduct for year 1?

Multiple Choice

$0.

$13,100.

$6,550.

$7,050.

$6,050.

Explanation / Answer

Elaine is allowed to deduct taxes only for the portion of the year she owned the home. Because she owned the home for half a year she can deduct half of the taxes even though she paid all of the taxes so the amount would be $6,550.

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