Question

On July 1 of 2015, Elaine purchased a new home for $400,000. At the time of the purchase, it was estimated that the property tax bill on the home for the year would be $8,000 ($400,000 × 2%). On the settlement statement, Elaine was charged $4,000 for the year in property taxes and the seller was charged $4,000. On December 31, Elaine discovered that the real property taxes on the home for the year were actually $9,000. Elaine wrote a $9,000 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 2015?

A. $0
B. $4,000
C. $4,500
D. $5,000
E. $9,000

Answer 1

Elaine is allowed to deduct the entire amount of the property taxes she paid for the year 2015, which is $9,000.Hence, the correct answer is option E.

Step-by-step explanation:

The question is about determining the amount of property taxes Elaine is allowed to deduct for the year 2015, considering a change in the actual property taxes versus the estimated taxes at the time of purchasing a home. Elaine purchased the home on July 1, 2015, for $400,000 with an estimated property tax of $8,000, which was evenly divided between her and the seller at the time of settlement. However, the actual property tax was $9,000 for the year, which was fully paid by Elaine. Since she owned the home during the time the property taxes became due and paid them in full, she is entitled to deduct the entire amount of the property taxes paid for the year, which is $9,000.