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Exam 14: Tax Consequences of Home Ownership

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Question 21

True/False

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When a taxpayer finances her personal residence, in general, she may not deduct points paid for loan origination fees, but she may deduct points paid as prepaid interest.

A) True
B) False

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Question 22

Multiple Choice

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On November 1, year 1, Jamie (who is single) purchased and moved into her principal residence. In the early part of year 2, Jamie was laid off from her job. On February 1, year 2, Jamie sold the home at a $35,000 gain. She sold the home because she found a new job in a different state. How much of the gain, if any, may Jamie exclude from her gross income in year 2?

A) $0.
B) $3,125.
C) $31,250.
D) $35,000.

E) None of the above
F) All of the above

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Question 23

Multiple Choice

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Jamison is self-employed and he works out of an office in his home. After allocating the home-related expenses between the business office and the rest of the home, which of the following statements regarding the sequence of deductibility of the expenses allocated to the home office business use is correct? (Jamison does not use the simplified method for determining the home office expense deduction.)

Serena is single. She purchased her principal residence three years ago. She lived in the home until she sold it at a $300,000 gain this year. Serena was allowed to exclude $250,000 of the $300,000 gain. What is the character of the $50,000 gain she was not able to exclude?

The amount of a taxpayer's itemized deduction for all taxes combined, including state income taxes and real property taxes, is limited to $10,000 ($5,000 if married filing separately).

Braxton owns a second home that he rents to others. During the year, he used the second home for 50 days for personal use and for 100 days for rental use. After allocating the home-related expenses between personal use and rental use, which of the following statements regarding the sequence of deductibility of the expenses allocated to the rental use is correct (assume taxpayer has no expenses to obtain tenants) ?

Renting a residence may have nontax advantages over owning a home.

Alison Jacobs (single)purchased a home in Las Vegas, Nevada, for $400,000. She moved into the home on September 1, year 0. She lived in the home as her primary residence until July 1 of year 4, when she sold the home for $675,000. If Alison's tax rate on long-term capital gains is 15 percent, what amount of tax will Alison pay on the $275,000 gain?

Don owns a condominium near Orlando, California. This year, he incurs the following expenses in connection with his condo: During the year, Don rented the condo for 70 days and he received $17,400 of rental receipts. He did not use the condo at all for personal purposes during the year. Don is considered to be an active participant in the property. Don's AGI from all sources other than the rental property is $140,000. Don does not have passive income from any other sources. What is Don's AGI?

Taxpayers renting a home would generally report the rental income and expenses on Schedule E.

Which of the following statements regarding the break-even point for paying discount points in order to get a lower interest rate on the loan is correct?

A taxpayer is not allowed to deduct home mortgage interest on debt unless the debt was incurred to acquire or construct the home.

When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to rental use is based on the number of rental days over rental days plus personal-use days.

For a home to be considered a rental (nonresidence) property, a taxpayer must:

In year 1, Abby purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, year 4 the outstanding balance on the loan was $40,000. On January 1, year 4, when her home was worth $300,000, Abby refinanced the home by taking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the $40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During year 4, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in year 4 on the new mortgage as home-related interest expense?

Taxpayers are allowed to deduct real property taxes at the time they pay estimated real property taxes to an escrow account established by the lender for the taxpayer's property taxes.

A taxpayer may be required to include in gross income the gain the taxpayer realizes when she sells her principal residence.

Which of the following statements regarding the tax deductibility of points related to a home mortgage is correct?

Katy owns a second home. During the year, she used the home for 20 personal-use days and 50 rental days. Katy allocates expenses associated with the home between rental use and personal use. Katy did not incur any expenses to obtain tenants. Which of the following statements is correct regarding the tax treatment of Katy's income and expenses from the home?

Under the tax law, a taxpayer's itemized deduction for home mortgage interest in any one particular year is limited to $10,000.