Exam 14: Tax Consequences of Home Ownership

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.

Patricia purchased a home on January 1, 2014 for $1,200,000 by making a down payment of $100,000 and financing the remaining $1,100,000 with a 30-year loan, secured by the residence, at 6 percent. During 2014, Patricia made interest-only payments on the loan of $66,000. What amount of the $66,000 interest expense Patricia paid during 2014 may she deduct as an itemized deduction?

Which of the following statements regarding the home office expense deduction is correct?

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

Which of the following statements regarding the first time home buyer credit is correct?

When a taxpayer rents a residence for part of the year, the residence is not eligible as a qualified residence for the home mortgage interest expense deduction unless the taxpayer's:

Taxpayers who purchased a home in 2008 and received the first-time home buyer tax credit must (with a few limited exceptions) pay the credit back to the government in subsequent years.

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.

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?

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

On February 1, 2014 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 2014 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?

Cameron (single) purchased and moved into his principal residence on July 1, 2014. On June 1, 2015, Cameron lost his job. Because he couldn't afford the payments on his new home, he sold it on July 1, 2015 in order to move into some apartments across the street. On the sale of his principal residence, Cameron realized a $50,000 gain. How much of the gain is Cameron allowed to exclude from his 2015 gross income?

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 funds in the escrow account to pay the 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)?

Which of the following statements regarding interest expense on home-related debt is correct?

Ethan (single) purchased his home on July 1, 2005. On July 1, 2012 he moved out of the home. He rented the home until July 1, 2014 when he moved back into the home. On July 1, 2015 he sold the home and realized a $210,000 gain. What amount of the gain is Ethan allowed to exclude from his 2015 gross income?

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.

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

Michael (single) purchased his home on July 1, 2004. On July 1, 2012 he moved out of the home. He rented out the home until July 1, 2013 when he moved back into the home. On July 1, 2014 he sold the home and realized a $300,000 gain. What amount of the gain is Michael allowed to exclude from his 2014 gross income?

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

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