Exam 14: Tax Consequences of Home Ownership

A taxpayer can qualify for the home sale exclusion even if she has moved out of the home and is renting the home to another at the time of the sale.

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

Jacoby purchased a homein 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, 2019 and 2020. In 2020, Jacoby can deduct interest expense on $1,100,000 of the loan principal.

On March 31, year 1, Mary borrowed $200,000 to buy her principal residence. Mary paid 1 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?

Dawn (single)purchased her home on July 1, 2009. On July 1, 2019, Dawn moved out of the home. She rented out the home until July 1, 2020, 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 2020 gross income?

A taxpayer who rents out a home for at least one day and does not use a home for personal purposes for more than 14 days during the year is ineligible to deduct any home mortgage interest expense on a loan secured by the home.