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Exam 14: Tax Consequences of Home Ownership

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Question 51

True/False

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To be allowed to exclude gain on the sale of a principal residence, the taxpayer selling the home must be using the home as a principal residence at the time of the sale.

A) True
B) False

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Question 52

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Dawn (single) purchased her home on July 1, 2008. On July 1, 2018, Dawn moved out of the home. She rented out the home until July 1, 2019, when she sold the home and realized a $230,000 gain (assume none of the gain was attributable to depreciation) . What amount of the gain is Dawn allowed to exclude from her 2019 gross income?

A) $0.
B) $23,000.
C) $207,000.
D) $230,000.

E) B) and D)
F) A) and B)

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Question 53

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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?

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

A married couple filing a joint tax return is eligible to exclude up to $500,000 of gain realized on the sale of a personal residence if both spouses meet the ownership test and at least one spouse meets the use test.

Taxpayers using the simplified method for computing home office expenses do not deduct depreciation expense for the home office use.

Which of the following best describes a qualified residence for the purposes of determining a taxpayer's deductible home mortgage interest expense?

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

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.

When determining the number of days a taxpayer has rented out a home during the year, any day when the home is available for rent but not actually rented out counts as a day of rental use.

Ilene rents her second home for the entire year. During the year, Ilene reported a net loss of $15,000 from the rental. If Ilene is an active participant in the rental and her AGI is $140,000, how much of the loss can she deduct against ordinary income in the year?

Patricia purchased a home on January 1, 2017, for $1,200,000 by making a down payment of $100,000 and financing the remaining $1,100,000 with a loan, secured by the residence, at 6 percent. From 2017 through 2019, Patricia made interest-only payments on the loan each year in the amount of $66,000. What amount of the $66,000 interest expense that Patricia paid during 2019 may she deduct as an itemized deduction? (Assume not married filing separately.)

Taxpayers with home offices who use the actual expense method for computing home office expenses must allocate indirect expenses of the home between personal use and home office use. Only expenses allocated to the home office use are deductible.

Heidi (single)purchased a home on January 1, 2009, for $400,000. She lived in the home as her primary residence until January 1, 2017, when she began using the home as a vacation home. She used the home as a vacation home until January 1, 2018. (She used a different home as her primary residence from January 1, 2017, to January 1, 2018.)On January 1, 2018, Heidi moved back into the home and used it as her primary residence until January 1, 2019, when she sold the home for $700,000. What amount of the $300,000 gain Heidi realized on the sale must she recognize for tax purposes in 2019?

A tax loss from a rental home is a passive activity loss.

Taxpayers with high AGI are not allowed to deduct home mortgage interest expense.

For determining whether a taxpayer qualifies to exclude gain on the sale of a principal residence, the periods of ownership and use need not be continuous nor do they need to cover the same two-year period.

Tyson owns a condominium near Laguna Beach, California. This year, he incurs the following expenses in connection with his condo: During the year, Tyson rented the condo for 100 days, receiving $25,000 of gross income. He personally used the condo for 60 days. Assume Tyson uses the Tax Court method of allocating expenses to rental use of the property. What is Tyson's net rental income for the year (assume this is not a leap year)?

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.

On April 1, year 1, Mary borrowed $200,000 to refinance the original mortgage on her principal residence. Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. How much can Mary deduct in year 1 for her points paid?