Exam 14: Tax Consequences of Home Ownership

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

Which of the following statements regarding personal and/or rental use of a home is false?

Several years ago, Chara acquired a home that she vacationed in part of the time and she rented part of the time. During the current year Chara:Personally stayed in the home for 14 days,Rented it at full fair market value to her parents for eight days,Rented it to her sister for five days at half price,Rented it to her friend at a discounted rate for three days,Rented it to another friend at fair market value for six days,Rented the home to third parties for 42 days at the market rate,Did repair and maintenance work for three days to keep the home ready for renters, andMarketed the property and made it available for rent for 120 days during the year even though it was not rented during this time. How many days of personal use and how many days of rental use did Chara experience on the property during the year?

Which of the following statements regarding limitations on the deductibility of home office expenses of self-employed taxpayers is correct?

Ilene rents a property 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?

In order to be eligible to exclude gain on the sale of a principal residence, the taxpayer must meet which of the following test(s)?

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.

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?

Taxpayers meeting certain requirements may be allowed to exclude at least a portion of gain realized on the sale of a principal residence.

Lebron Taylor purchased a home on July 1, 2019, for $500,000. Lebron paid for the entire purchase price with cash. On January 1, 2020, Lebron needed additional cash for purposes unrelated to his home, so he took out a loan secured by the residence for $150,000. During 2020, he made interest-only payments of $4,500 on the loan. What amount of the $4,500 interest expense can Lebron deduct in 2020?

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 350 square feet. The size of her entire home is 2,500 square feet. During the year, Mercury received $11,000 of gross income from her business activities and she reported $3,600 of business expenses unrelated to her home office. For her entire home in the current year, she reported $3,450 of mortgage interest, $1,300 of property taxes, $760 of insurance, $820 of utilities and other operating expenses, and $4,200 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?

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

In terms of allocating expenses between rental use and personal use, the IRS method of allocation tends to allocate more expenses to personal use than does the Tax Court method of allocation.

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

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 attributable to the home office use.

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

Amanda purchased a home for $460,000 in 2016. She paid $92,000 cash and borrowed the remaining $368,000. This is Amanda's only residence. Assume that in year 2022, when the home had appreciated to $690,000 and the remaining mortgage was $276,000, interest rates declined and Amanda refinanced her home. She borrowed $460,000 at the time of the refinancing, paid off the first mortgage, and used the remainder for purposes unrelated to the home. What is her total amount of acquisition indebtedness forthe purposes of determining the deduction for home mortgage interest? (Assume not married filing separately.)

On March 31, year 1, Mary borrowed $200,000 to buy 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. What is Mary's year 1 deduction for her points paid?

Leticia purchased a home on July 1, 2018, for $200,000. She paid $180,000 down and financed the remaining $20,000. On January 1, 2020, when the outstanding balance of her mortgage was $15,000 and her home was valued at $300,000, Leticia refinanced her home for $200,000. With the $200,000 loan, she paid off the remaining $15,000 balance of her original mortgage, she used $35,000 to substantially improve her home, and she used the remaining $150,000 for purposes unrelated to her home. During 2022, Leticia made interest-only payments of $15,000 on the loan. What amount of the $15,000 interest expense is Leticia allowed to deduct in year 2022?