Question 1

In general terms, the tax laws favor taxpayers who own a principal residence relative to those who rent a principal residence.

Accepted Answer

A) True 
 B)False

Question 2

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?

Accepted Answer

A)  $0 net income. $1,000 depreciation expense carried forward to next year. 
B)  ($1,000) net loss. $0 expenses carried over to next year. 
C)  $0 net income. $1,000 of other expense carried over to next year. 
D)  $0 net income. $1,000 of interest expense and property taxes carried over to next year. 
A)  $0 net income. $1,000 depreciation expense carried forward to next year. 
B)  ($1,000) net loss. $0 expenses carried over to next year. 
C)  $0 net income. $1,000 of other expense carried over to next year. 
D)  $0 net income. $1,000 of interest expense and property taxes carried over to next year.

Question 3

Harvey rents his second home. During 2014, 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 in 2014?

Accepted Answer

A)  $35,000 
B)  $25,000 
C)  $5,000 
D)  $0 
A)  $35,000 
B)  $25,000 
C)  $5,000 
D)  $0

Question 4

On March 31, 2014, 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 2014 deduction for her points paid?

Accepted Answer

A)  $50 
B)  $150 
C)  $4,500 
D)  $6,000 
A)  $50 
B)  $150 
C)  $4,500 
D)  $6,000

Question 5

For regular tax purposes, a taxpayer may deduct interest expense on qualifying home equity indebtedness even if the taxpayer uses the loan proceeds for a purpose unrelated to the home.

Accepted Answer

A) True 
 B)False

Question 6

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. 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)?

Accepted Answer

A)  Depreciation expense, other expenses, property taxes and interest expense. 
B)  Other expenses, depreciation expense, property taxes and interest expense. 
C)  Property taxes and interest expense, depreciation expense, other expenses. 
D)  Other expenses, property taxes and interest expense, depreciation expense. 
E)  None of these statements is correct. 
A)  Depreciation expense, other expenses, property taxes and interest expense. 
B)  Other expenses, depreciation expense, property taxes and interest expense. 
C)  Property taxes and interest expense, depreciation expense, other expenses. 
D)  Other expenses, property taxes and interest expense, depreciation expense. 
E)  None of these statements is correct.

Question 7

When a taxpayer experiences a net loss from a nonresidence (rental property):

Accepted Answer

A)  The taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources. 
B)  The loss is fully deductible against the taxpayer's ordinary income no matter the circumstances. 
C)  If the taxpayer is not an active participant in the rental, the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income. 
D)  If the taxpayer is not allowed to deduct the loss due to the passive activity loss limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property. 
A)  The taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources. 
B)  The loss is fully deductible against the taxpayer's ordinary income no matter the circumstances. 
C)  If the taxpayer is not an active participant in the rental, the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income. 
D)  If the taxpayer is not allowed to deduct the loss due to the passive activity loss limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

Question 8

Patrick purchased a home on January 1, 2014 for $600,000 by making a down payment of $100,000 and financing the remaining $500,000 with a 30-year loan, secured by the residence, at 6 percent. During 2014 Patrick made interest-only payments on the loan of $30,000. On July 1, 2014, when his home was worth $600,000 Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent. During 2014, he made interest-only payments on this loan in the amount of $3,000. What amount of the $33,000 interest expense Patrick paid during 2014 may he deduct as an itemized deduction?

Accepted Answer

A)  $0 
B)  $3,000 
C)  $30,000 
D)  $33,000 
A)  $0 
B)  $3,000 
C)  $30,000 
D)  $33,000

Question 9

Which of the following statements regarding qualified home equity indebtedness is correct?

Accepted Answer

A)  The limit on qualified home equity indebtedness depends on filing status. 
B)  Limits on qualified home equity indebtedness and qualified acquisition indebtedness do not apply to the same loan. 
C)  If the value of a home drops, the amount of qualified home equity indebtedness on an existing home equity loan also drops. 
D)  In order to deduct interest on home equity indebtedness, taxpayers must use the proceeds of a home equity loan to improve the home. 
A)  The limit on qualified home equity indebtedness depends on filing status. 
B)  Limits on qualified home equity indebtedness and qualified acquisition indebtedness do not apply to the same loan. 
C)  If the value of a home drops, the amount of qualified home equity indebtedness on an existing home equity loan also drops. 
D)  In order to deduct interest on home equity indebtedness, taxpayers must use the proceeds of a home equity loan to improve the home.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

Jacoby purchases a home 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. Jacoby can deduct interest expense on $1,100,000 of the loan principal.

Accepted Answer

A) True 
 B)False

Question 13

For a home to be considered a rental (nonresidence) property, a taxpayer must

Accepted Answer

A)  Rent the property for 15 days or more during the year. 
B)  Use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented. 
C)  Use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented. 
D)  Rent the property for 15 days or more during the year and use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented. 
E)  Rent the property for 15 days or more during the year and use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented. 
A)  Rent the property for 15 days or more during the year. 
B)  Use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented. 
C)  Use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented. 
D)  Rent the property for 15 days or more during the year and use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented. 
E)  Rent the property for 15 days or more during the year and use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented.

Question 14

In 2011, Kris purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, 2014, the outstanding balance on the loan was $40,000. On January 1, 2014, when his home was worth $300,000, Kris refinanced the home by taking out a $150,000 mortgage at 5 percent. With the loan proceeds, he paid off the $40,000 balance of the existing mortgage and used the remainder for purposes unrelated to the home. During 2014, he made interest only payments on the new loan of $7,500. What amount of the $7,500 interest expense on the new loan can Kris deduct in 2014 on the new mortgage as home related interest expense?

Accepted Answer

A)  $2,000 
B)  $5,000 
C)  $7,000 
D)  $7,500 
A)  $2,000 
B)  $5,000 
C)  $7,000 
D)  $7,500

Question 15

In 2011, Abby purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, 2014, the outstanding balance on the loan was $40,000. On January 1, 2014, when her home was worth $300,000, Abby refinanced the home by taking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the $40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During 2014, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in 2014 on the new mortgage as home related interest expense?

Accepted Answer

A)  $0 
B)  $2,000 
C)  $5,000 
D)  $6,000 
A)  $0 
B)  $2,000 
C)  $5,000 
D)  $6,000

In general terms, the tax laws favor taxpayers who own a principal residence relative to those who rent a principal residence.

Harvey rents his second home. During 2014, 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 in 2014?

On March 31, 2014, 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 2014 deduction for her points paid?

For regular tax purposes, a taxpayer may deduct interest expense on qualifying home equity indebtedness even if the taxpayer uses the loan proceeds for a purpose unrelated to the home.

When a taxpayer experiences a net loss from a nonresidence (rental property):

Which of the following statements regarding qualified home equity indebtedness is correct?

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.

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.

Jacoby purchases a home 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. Jacoby can deduct interest expense on $1,100,000 of the loan principal.

For a home to be considered a rental (nonresidence) property, a taxpayer must

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

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Exam 14: Tax Consequences of Home Ownership

In general terms, the tax laws favor taxpayers who own a principal residence relative to those who rent a principal residence.

Harvey rents his second home. During 2014, 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 in 2014?

On March 31, 2014, 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 2014 deduction for her points paid?

For regular tax purposes, a taxpayer may deduct interest expense on qualifying home equity indebtedness even if the taxpayer uses the loan proceeds for a purpose unrelated to the home.

When a taxpayer experiences a net loss from a nonresidence (rental property):

Which of the following statements regarding qualified home equity indebtedness is correct?

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.

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.

Jacoby purchases a home 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. Jacoby can deduct interest expense on $1,100,000 of the loan principal.

For a home to be considered a rental (nonresidence) property, a taxpayer must

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters