Exam 14: Tax Consequences of Home Ownership

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)

Jennifer owns a home that she rents for 364 days and uses for personal purposes for one day. Jennifer is required to allocate expenses associated with the home between rental and personal use.

Katy owns a second home. During the year, she used the home for 20 personal use days and 50 rental days. Katy allocates expenses associated with the home between rental use and personal use. Katy did not incur any expenses to obtain tenants. Which of the following statements is correct regarding the tax treatment of Katy's income and expenses from the home?

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.

What is the maximum amount of gain on the sale of principal residence a married couple may exclude from gross income?

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.

On February 1, 2016 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 2016 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?

Amanda purchased a home for $1,000,000 in year 1. She paid $200,000 cash and borrowed the remaining $800,000. This is Amanda's only residence. Assume that in year 10 when the home had appreciated to $1,500,000 and the remaining mortgage was $600,000, interest rates declined and Amanda refinanced her home. She borrowed $1,000,000 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 qualifying home-related debt for tax purposes?

A taxpayer who otherwise meets the ownership and use tests may not be allowed to exclude all of her realized gain if the taxpayer has nonqualified use of the home before selling.

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:

Alfredo is self-employed and he uses a room in his home as his principal place of business. He meets clients there and doesn't use the room for any other purpose. The size of his home office is 600 square feet. The size of his entire home is 3,000 square feet. During the current year, Alfredo received $10,000 of gross income from his business activities and he reports $7,500 of business expenses unrelated to his home office. For his entire home, he reported $10,000 of mortgage interest, $2,000 of property taxes, $2,500 of home operating expenses, and $4,500 of depreciation expense. What amount of home office expenses is Alfredo allowed to deduct in the current year? (assume he uses the actual expense method of computing home office expenses) Indicate the amount and type of expenses he must carry over to next year, if any.

A taxpayer may be required to include in gross income gain the taxpayer realizes when she sells her principal residence.

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.

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

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

Alison Jacobs (single) purchased a home in Las Vegas, Nevada for $400,000. She moved into the home on September 1, year 0. She lived in the home as her primary residence until July 1 of year 4 when she sold the home for $675,000. If Alison's marginal ordinary tax rate is 25% what amount of tax will Alison pay on the $275,000 gain?

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?

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.

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

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.