Exam 14: Tax Consequences of Home Ownership

Expenses of a vacation home allocated to rental use are deductible for AGI.

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.

For tax purposes a dwelling unit is a residence if the taxpayer's number of personal-use days of the unit is more than 10 days.

Which of the following statements regarding home-related transactions is correct?

The ownership test for excluding gain on the sale of a principal residence requires the taxpayer to have owned the property for three or more years during the five-year period ending on the date of sale.

Andrew Whiting (single)purchased a home in Boise, Idaho, for $300,000. He moved into the home on July 1 of year 1. He lived in the home as his primary residence until November 1, year 2, when he sold the home for $470,000. Andrew sold the home because he was changing jobs and his new job was in a different state. What amount of gain must Andrew recognize on the home sale in year 2?

Darren (single)purchased a home on January 1, 2016, for $400,000. Darren lived in the home as his primary residence until January 1, 2018, when he began using the home as a vacation home. He used the home as a vacation home until January 1, 2019. (He used a different home as his primary residence from January 1, 2018, to January 1, 2019.)On January 1, 2019, Darren moved back into the home and used it as his primary residence until January 1, 2020, when he sold the home for $500,000. What amount of the $100,000 gain Darren realized on the sale must he recognize for tax purposes in 2020?

Brady 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. Brady collected $20,000 of rental receipts during the year. Brady allocated $7,000 of interest expense and property taxes, $10,000 of other expenses, and $4,000 of depreciation expense to the rental use. What is Brady's net income from the property and what type and amount of expenses will he carry forward to next year, if any?

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?

Harvey rents his second home. During the year, Harvey reported a net loss of $35,000 from the rental. If Harvey is an active participant in the rental and his AGI is $80,000, how much of the loss can he deduct against ordinary income for the year?

Which of the following statements regarding deductions for real property taxes is correct?

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

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. Assume that Braxton itemizes deductions and nonrental taxes do not exceed $10,000 by more than the real property taxes allocated to business use of the home. 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)?

Mercury is self-employed and she uses a room in her home as her principal place of business. She meets clients there and doesn't use the room for any other purpose. The size of her home office is 400 square feet. The size of her entire home is 2,400 square feet. During the year, Mercury received $6,300 of gross income from her business activities and she reported $2,500 of business expenses unrelated to her home office. For her entire home in the current year, she reported $3,500 of mortgage interest, $1,000 of property taxes, $600 of insurance, $500 of utilities and other operating expenses, and $3,200 of depreciation expense. What amount of home office expenses is Mercury allowed to deduct in the current year using the actual expense method? Indicate the amount and type of expenses she must carry over to the next year, if any. What amount of home office expenses is Mercury allowed to deduct in the current year using the simplified method?

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 $12,200 of gross income from his business activities, and he reports $9,150 of business expenses unrelated to his home office. For his entire home, he reported $10,400 of mortgage interest, $4,200 of property taxes, $3,600 of home operating expenses, and $7,150 of depreciation expense.Alfredo itemizes deductions, and the sum of his itemized deduction for non-home business taxes and the real property taxes allocated to business use of the home is less than $12,200. 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.

A personal residence is not a capital asset.

In certain circumstances, a taxpayer could rent her personal residence at a profit and not pay any tax on the income.

In certain circumstances, a taxpayer who does not meet the ownership and use tests may still be allowed to exclude the entire realized gain on the sale of a principal residence.

Taxpayers who use a vacation home for both personal and rental use generally must allocate expenses associated with the home between personal and rental use.

On February 1, 2020, 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 2020 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?