During 2016,Nancy paid the following taxes:
Tax on residence (for the period from March 1 through August 31,2016)
$5,250
State motor vehicle tax (based on the value of the personal use automobile)
430
State sales tax
3,500
State income tax
3,050

Nancy sold her personal residence on June 30,2016,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 2016 for Nancy?

Question

During 2016,Nancy paid the following taxes:
Tax on residence (for the period from March 1 through August 31,2016)
$5,250
State motor vehicle tax (based on the value of the personal use automobile)
430
State sales tax
3,500
State income tax
3,050
​
Nancy sold her personal residence on June 30,2016,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 2016 for Nancy?

Quizplus · Accepted Answer

- The tax on residence is partially deductible as an itemized deduction for the portion of the year that Nancy owned the residence (March 1 through June 30), which is 122 days out of 366 days in 2016. So, the deductible portion is calculated as: $5,250 x (122/366) = $1,750.
- The state motor vehicle tax and state sales tax are also deductible as an itemized deduction.
- The state income tax is deductible as an itemized deduction only if Nancy elects to deduct state and local income taxes instead of state and local sales taxes.
- The real estate taxes are not deductible since they were not prorated between the buyer and the seller. 
Therefore, the total deductible amount is $1,750 + $430 + $3,500 + $3,050 = $7,730. However, since Nancy sold the personal residence and did not have to pay any real estate taxes for the year, the total deductible amount is reduced by the amount of the tax on residence that was already paid: $7,730 - $5,250 = $2,480. Thus, the answer is C) $7,382.

During 2016,Nancy Paid the Following Taxes