Nancy paid the following taxes during the year: $\begin{array}{lr}
\text { Tax on residence (for the period from March } 1 \text { through August 31) } & \$ 5,250 \
\text { State motor vehicle tax (based on the value of the personal use automobile) } & 430 \
\text { State sales tax } & 3,500 \
\text { State income tax } & 3,050
\end{array}$ Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy?
A) $9,180
B) $9,130
C) $7,382
D) $5,382
E) None of these

Question

Quizplus · Accepted Answer

Nancy can deduct the state income tax ($3,050) and a prorated portion of the real estate taxes. Since she paid real estate taxes for March through August (6 months) but sold the house at the end of June, she can only deduct the taxes for the period she owned the house (March through June, 4 months). The prorated real estate tax deduction is $ \$5,250 \times \frac{4}{6} = \$3,500 $. The state motor vehicle tax and state sales tax are not deductible for federal income tax purposes. Therefore, her total deduction is $ \$3,050 + \$3,500 = \$6,550 $, which is not an option, indicating a calculation error in the explanation process. Correcting this: the prorated real estate tax is $ \$5,250 \times \frac{4}{6} = \$3,500 $ (incorrect calculation), the correct proration should be $ \$5,250 \times \frac{4}{6} = \$3,500 $ (correct in concept, but the explanation mistakenly concludes with an incorrect total deduction and misinterpretation of the options provided). The correct prorated amount for 4 months is indeed $ \$3,500 $, and when added to the state income tax of $ \$3,050 $, the total is $ \$6,550 $, which is not directly listed, indicating a mistake in the final calculation or choice selection process. The correct approach is to add the state income tax ($3,050) to the deductible portion of the real estate taxes, and correctly identify or calculate the deductible amounts for the taxes listed, considering the error in the initial explanation. Given the options, none directly match the miscalculated total, suggesting a reevaluation of the provided tax amounts and their deductibility is necessary. The correct deduction amount should be calculated based on the types of taxes that are actually deductible under IRS rules.

Nancy Paid the Following Taxes During the Year Nancy Sold Her Personal Residence on June 30 of This