Question 1

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 2

Darren (single) purchased a home on January 1, 2010 for $400,000. Darren lived in the home as his primary residence until January 1, 2012 when he began using the home as a vacation home. He used the home as a vacation home until January 1 2013 (he used a different home as his primary residence from January 1, 2012 to January 1, 2013). On January 1, 2013, Darren moved back into the home and used it as his primary residence until January 1, 2014 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 2014?

Accepted Answer

$25,000 ga

Question 3

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

Accepted Answer

A)  The amount of home office expense allowed under the simplified method of computing home office expenses is limited to a fixed amount no matter how much the income from the business and no matter how big the home office. 
B)  Taxpayers may choose to use the actual expense method for determining home office expenses in one year and choose the simplified method in a different year. 
C)  Under the simplified method of computing home office expenses, a taxpayer is not allowed to deduct any depreciation associated with a home as a home office expense. 
D)  All of these are correct. 
A)  The amount of home office expense allowed under the simplified method of computing home office expenses is limited to a fixed amount no matter how much the income from the business and no matter how big the home office. 
B)  Taxpayers may choose to use the actual expense method for determining home office expenses in one year and choose the simplified method in a different year. 
C)  Under the simplified method of computing home office expenses, a taxpayer is not allowed to deduct any depreciation associated with a home as a home office expense. 
D)  All of these are correct.

Question 4

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

Accepted Answer

A)  Only the taxpayer's principal residence. 
B)  The taxpayer's principal residence and two other residences (chosen by the taxpayer). 
C)  The taxpayer's principal residence and one other residence (chosen by the taxpayer). 
D)  Any two residences chosen by the taxpayer. 
A)  Only the taxpayer's principal residence. 
B)  The taxpayer's principal residence and two other residences (chosen by the taxpayer). 
C)  The taxpayer's principal residence and one other residence (chosen by the taxpayer). 
D)  Any two residences chosen by the taxpayer.

Question 5

Which of the following statements regarding the tax deductibility of points related to a home mortgage is correct?

Accepted Answer

A)  Points paid in the form of a loan origination fee on an original home loan are deductible over the life of the loan. 
B)  Points paid in the form of prepaid interest on an original home loan are deductible over the life of the loan. 
C)  Points paid in the form of prepaid interest on a refinance are deductible over the life of the loan. 
D)  None of these statements is correct. 
A)  Points paid in the form of a loan origination fee on an original home loan are deductible over the life of the loan. 
B)  Points paid in the form of prepaid interest on an original home loan are deductible over the life of the loan. 
C)  Points paid in the form of prepaid interest on a refinance are deductible over the life of the loan. 
D)  None of these statements is correct.

Question 6

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:

Accepted Answer

A)  Personal use of the home exceeds the taxpayer's rental use of the home. 
B)  Personal use of the home exceeds half of the taxpayer's rental use of the home. 
C)  Personal use of the home exceeds the lesser of 14 days or 10 percent of the taxpayer's rental use of the home. 
D)  Personal use of the home exceeds the greater of 14 days or 10 percent of the taxpayer's rental use of the home. 
A)  Personal use of the home exceeds the taxpayer's rental use of the home. 
B)  Personal use of the home exceeds half of the taxpayer's rental use of the home. 
C)  Personal use of the home exceeds the lesser of 14 days or 10 percent of the taxpayer's rental use of the home. 
D)  Personal use of the home exceeds the greater of 14 days or 10 percent of the taxpayer's rental use of the home.

Question 7

Harriet owns a second home that she rents to others. During the year, she used the second home for 10 personal days and for 200 rental days. Which of the following statements regarding the manner in which she should account for her income and/or expenses associated with the home is incorrect?

Accepted Answer

A)  Harriet's deductible expenses are not limited to the amount of gross rental income from the property. 
B)  Harriet will be allowed to deduct all of the mortgage interest on the loan secured by the property. 
C)  Harriet is required to include all of the rental receipts in gross income. 
D)  Harriet is required to allocate all expenses associated with the home to rental use or personal use. 
A)  Harriet's deductible expenses are not limited to the amount of gross rental income from the property. 
B)  Harriet will be allowed to deduct all of the mortgage interest on the loan secured by the property. 
C)  Harriet is required to include all of the rental receipts in gross income. 
D)  Harriet is required to allocate all expenses associated with the home to rental use or personal use.

Question 8

Ilene rents her second home. During 2014, 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 2014?

Accepted Answer

A)  $15,000 
B)  $10,000 
C)  $5,000 
D)  $0 
A)  $15,000 
B)  $10,000 
C)  $5,000 
D)  $0

Question 9

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

Accepted Answer

A)  A day for which a taxpayer rents a home to an unrelated party for less than the property's fair market value is considered to be a personal use day. 
B)  A day for which a taxpayer rents a home to a relative for full fair market value is considered to be a rental use day. 
C)  A day for which an unrelated non-owner stays in the home under a vacation exchange arrangement is considered to be a personal use day. 
D)  A day for which the home is available for rent but is not occupied does not count as a personal use or a rental use day. 
A)  A day for which a taxpayer rents a home to an unrelated party for less than the property's fair market value is considered to be a personal use day. 
B)  A day for which a taxpayer rents a home to a relative for full fair market value is considered to be a rental use day. 
C)  A day for which an unrelated non-owner stays in the home under a vacation exchange arrangement is considered to be a personal use day. 
D)  A day for which the home is available for rent but is not occupied does not count as a personal use or a rental use day.

Question 10

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

Accepted Answer

A)  Taxpayers who acquired a home in 2008 and claimed the credit is not required to pay the credit back. 
B)  Taxpayers who acquired a home in 2008 and claimed the credit are required to pay the credit back over a 15-year period. 
C)  Taxpayers who acquired a home in 2008 and claimed the credit are required to pay it back over a 15-year period. 
D)  None of these 
A)  Taxpayers who acquired a home in 2008 and claimed the credit is not required to pay the credit back. 
B)  Taxpayers who acquired a home in 2008 and claimed the credit are required to pay the credit back over a 15-year period. 
C)  Taxpayers who acquired a home in 2008 and claimed the credit are required to pay it back over a 15-year period. 
D)  None of these

Question 11

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

Accepted Answer

A)  A taxpayer is not allowed to deduct property taxes as the taxpayer makes monthly mortgage payments to an escrow account held by her mortgage company. 
B)  Taxpayers are not allowed to deduct payments made for setting up water and sewer services. 
C)  An individual deducts real property taxes on her principal residence as a for AGI deduction. 
D)  Taxpayers are not allowed to deduct payments made for neighborhood sidewalks. 
A)  A taxpayer is not allowed to deduct property taxes as the taxpayer makes monthly mortgage payments to an escrow account held by her mortgage company. 
B)  Taxpayers are not allowed to deduct payments made for setting up water and sewer services. 
C)  An individual deducts real property taxes on her principal residence as a for AGI deduction. 
D)  Taxpayers are not allowed to deduct payments made for neighborhood sidewalks.

Question 12

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?

Accepted Answer

A)  A taxpayer may have more than one principal residence at any one time. 
B)  A taxpayer's principal residence may not be a houseboat. 
C)  A taxpayer with more than one residence may annually elect which residence is considered to be the principal residence. 
D)  None of these statements is true. 
A)  A taxpayer may have more than one principal residence at any one time. 
B)  A taxpayer's principal residence may not be a houseboat. 
C)  A taxpayer with more than one residence may annually elect which residence is considered to be the principal residence. 
D)  None of these statements is true.

Question 13

Nelson Whiting (single) purchased a home in Denver, Colorado for $300,000. He moved into the home on July 1 of year 1. He lived in the home as his primary residence until December 1, year 2 when he sold the home for $450,000. Nelson sold the home because he was changing jobs and his new job was in a different state. What amount of gain must Nelson recognize on the home sale in year 2?

Accepted Answer

The answer of Nelson Whiting (single) purchased a home in...

Question 14

On March 31, 2014, Mary borrowed $200,000 to refinance the original mortgage on 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. How much can Mary deduct in 2014 for her points paid?

Accepted Answer

A)  $200 
B)  $150 
C)  $4,500 
D)  $6,000 
A)  $200 
B)  $150 
C)  $4,500 
D)  $6,000

Question 15

Kenneth lived in his home for the entire year except for when he rented his home (near a very nice ski resort) to a married couple for 14 days in December. The couple paid Kenneth $14,000 in rent for the two weeks. Kenneth incurred $1,000 in expenses relating to the home for the 14 days. Which of the following statements accurately describes the manner in which Kenneth should report his rental receipts and expenses for tax purposes?

Accepted Answer

A)  Kenneth would include the rental receipts in gross income and deduct the rental expenses for AGI. 
B)  Kenneth would exclude the rental receipts from gross income and deduct the rental expenses for AGI. 
C)  Kenneth would include the rental receipts in gross income and would not deduct the rental expenses because he used the residence for personal purposes for most of the year. 
D)  Kenneth would exclude the rental receipts, and he would not deduct the rental expenses. 
A)  Kenneth would include the rental receipts in gross income and deduct the rental expenses for AGI. 
B)  Kenneth would exclude the rental receipts from gross income and deduct the rental expenses for AGI. 
C)  Kenneth would include the rental receipts in gross income and would not deduct the rental expenses because he used the residence for personal purposes for most of the year. 
D)  Kenneth would exclude the rental receipts, and he would not deduct the rental expenses.

Question 16

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?

Accepted Answer

Under the actual exp

Question 17

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions.

Accepted Answer

A) True 
 B)False

Question 18

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 19

On November 1, 2014, Jamie (who is single) purchased and moved into her principal residence. In early 2015, Jamie was laid off from her job. On February 1, 2015, 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 2015?

Accepted Answer

A)  $0 
B)  $3,125 
C)  $31,250 
D)  $35,000 
A)  $0 
B)  $3,125 
C)  $31,250 
D)  $35,000

Question 20

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.

Accepted Answer

A) True 
 B)False

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

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

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

Which of the following statements regarding the tax deductibility of points related to a home mortgage 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:

Harriet owns a second home that she rents to others. During the year, she used the second home for 10 personal days and for 200 rental days. Which of the following statements regarding the manner in which she should account for her income and/or expenses associated with the home is incorrect?

Ilene rents her second home. During 2014, 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 2014?

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

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

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

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?

On March 31, 2014, Mary borrowed $200,000 to refinance the original mortgage on 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. How much can Mary deduct in 2014 for her points paid?

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions.

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

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.

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

Exam 14: Tax Consequences of Home Ownership

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

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

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

Which of the following statements regarding the tax deductibility of points related to a home mortgage 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:

Harriet owns a second home that she rents to others. During the year, she used the second home for 10 personal days and for 200 rental days. Which of the following statements regarding the manner in which she should account for her income and/or expenses associated with the home is incorrect?

Ilene rents her second home. During 2014, 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 2014?

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

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

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

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?

On March 31, 2014, Mary borrowed $200,000 to refinance the original mortgage on 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. How much can Mary deduct in 2014 for her points paid?

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions.

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

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.

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