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Exam 14: Tax Consequences of Home Ownership

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Question 51

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Jacoby purchased a home in 2017 for $1,500,000 by making a $150,000 down payment and by borrowing the remaining $1,350,000 with a loan secured by the home.He made interest-only payments for 2017,2018,and 2019.In 2019,Jacoby can deduct interest expense on $1,100,000 of the loan principal.

A) True
B) False

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Question 52

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Which of the following statements regarding the home mortgage interest expense deduction is false for a single taxpayer?

A) Taxpayers may deduct all of the interest paid on up to $1,000,000 of acquisition debt if the debt occurred in January of 2017.
B) Taxpayers may deduct all of the interest paid on up to $750,000 of acquisition debt if the debt occurred in January of 2018.
C) If,in 2019,a taxpayer refinances acquisition debt that was originally incurred in January of 2017,the taxpayer may deduct the interest on up to only $750,000 of the refinanced loan.
D) None of the choices is false.

E) A) and D)
F) C) and D)

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Question 53

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A taxpayer who is financing his personal residence and who pays points on the loan in the form of prepaid interest generally must deduct the points over the life of the loan no matter whether the loan is an original loan or a refinance of an existing loan.

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

On February 1,2019,Stephen (who is single) sold his principal residence (home 1) at a $100,000 gain.He was able to exclude the entire gain on his 2019 tax return.Stephen purchased and moved into home 2 on the same day.Assuming Stephen lives in home 2 as his principal residence until he sells it,which of the following statements is true?

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

Alfredo is self-employed and he uses a room in his home as his principal place of business.He meets clients there and doesn't use the room for any other purpose.The size of his home office is 600 square feet.The size of his entire home is 3,000 square feet.During the current year,Alfredo received $10,000 of gross income from his business activities,and he reports $7,500 of business expenses unrelated to his home office.For his entire home,he reported $10,000 of mortgage interest,$2,000 of property taxes,$2,500 of home operating expenses,and $4,500 of depreciation expense.What amount of home office expenses is Alfredo allowed to deduct in the current year? (Assume he uses the actual expense method of computing home office expenses.)Indicate the amount and type of expenses he must carry over to next year,if any.

Which of the following statements regarding a taxpayer's principal residence is true for the purposes of determining whether the taxpayer is eligible to exclude gain realized on the sale of the residence?

Harriet owns a second home that she rents to others.During the year,she used the second home for 10 personal days and for 200 rental days.Which of the following statements regarding the manner in which she should account for her income and/or expenses associated with the home is false?

A taxpayer who sells a principal residence that has been used as a rental property after 2005 will not be allowed to exclude the portion of the gain attributable to depreciation even if the taxpayer meets the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount.

Kristen rented out her home for 10 days during the year for $5,000.She used the home for personal purposes for the other 355 days.She allocated the following home expenses to the rental use of the home: Kristen's AGI is $120,000 before considering the effect of the rental activity.What is Kristen's AGI after considering the tax effect of the rental use of her home?

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions.

Which of the following statements regarding the exclusion of gain on the sale of a principal residence is correct?

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.

Kenneth lived in his home for the entire year except for when he rented his home (near a very nice ski resort) to a married couple for 14 days in December.The couple paid Kenneth $14,000 in rent for the two weeks.Kenneth incurred $1,000 in direct expenses relating to the home for the 14 days.Which of the following statements accurately describes the manner in which Kenneth should report his rental receipts and expenses for tax purposes?

Ashton owns a condominium near San Diego,California.This year,he incurs the following expenses in connection with his condo: During the year,Ashton rented the condo for 120 days and he received $24,000 of rental receipts.He did not use the condo at all for personal purposes during the year.Ashton is considered to be an active participant in the property.Ashton's AGI from all sources other than the rental property is $120,000.Ashton does not have passive income from any other sources.What is Ashton's AGI?

Joshua and Mary Sullivan purchased a new home on October 1 of year 1 for $400,000.At the time of the purchase,it was estimated that the real property tax rate for the year would be 1 percent of the property's value.Because the taxing jurisdiction collects taxes on a July 1 year-end,it was estimated that the Sullivans would be required to pay $3,000 in property taxes for the property tax year relating to October through June of year 2 ($400,000 × 1% × 9/12).The seller would be required to pay the $1,000 for July through September of year 1.Along with their monthly payment of principal and interest,the Sullivans paid $333 a month to the mortgage company to cover the property taxes.The mortgage company placed the money in escrow and used the escrow funds to pay the $3,000 property tax bill in July of year 2.The Sullivans' itemized deductions exceed the standard deduction before considering property taxes.What amount are the Sullivans allowed to deduct for property taxes relating to the property in year 1 (ending July 1,year 1)and year 2 (ending July 1,year 2)?

Jorge owns a home that he rents for 360 days and uses for personal purposes for five days.Jorge is not required to allocate expenses associated with the home between rental and personal use.

Rayleen owns a condominium near Orlando,Florida.This year,she incurs the following expenses in connection with her condo: During the year,Rayleen rented the condo for 130 days and she received $25,000 of rental receipts.She did not use the condo at all for personal purposes during the year.Rayleen is considered to be an active participant in the property.Rayleen's AGI from all sources other than the rental property is $130,000.Rayleen does not have passive income from any other sources.What is Rayleen's AGI after accounting for the rental property?

Which of the following statements best describes the deductibility of real property taxes when a taxpayer sells real property during a year?