Exam 14: Tax Consequences of Home Ownership

When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to the rental use is based on the number of rental days over rental days plus personal use days.

A taxpayer who purchases real property during the year is allowed to deduct the property taxes on that property for the entire year in which the property was purchased.

Ilene rents her second home. During the year, 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 the year?

Kimberly purchased a home on January 1, year 1 for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a 30-year loan, secured by the residence, at 6 percent. During year 1 and year 2 Kimberly made interest-only payments on this loan in the amount of $18,000 each year. On July 1, year 1, when her home was worth $500,000, Kimberly borrowed an additional $125,000 secured by the home at an interest rate of 8 percent. During year 1, she made interest-only payments on this loan in the amount of $5,000 and, during year 2, she made interest only payments on the loan in the amount of $10,000. What is the maximum amount of the $28,000 interest expense ($18,000 + $10,000) that Kimberly paid during year 2 may she deduct as an itemized deduction, if she used the proceeds of the second loan to pay off student loans from law school?

Taxpayers using the simplified method for computing home office expenses do not deduct depreciation expense for the home office use.

Larry owned and lived in a home for five years before marrying Darlene. Larry and Darlene lived in the home for one year before selling it at a $600,000 gain. Larry was the sole owner of the residence until it was sold. How much of the gain may Larry and Darlene exclude?

Serena is single. She purchased her principal residence three years ago. She lived in the home until she sold it at a $300,000 gain this year. Serena was allowed to exclude $250,000 of the $300,000 gain. What is the character of the $50,000 gain she was not able to exclude?

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

Dawn (single) purchased her home on July 1, 2007. On July 1, 2015 Dawn moved out of the home. She rented out the home until July 1, 2016 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 2016 gross income?

Jorge owns a home that he rents for 360 days and uses for personal purposes for five days. Jorge is not required to allocate expenses associated with the home between rental and personal use.

Patricia purchased a home on January 1, year 1 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 year 1, Patricia made interest-only payments on the loan of $66,000. What amount of the $66,000 interest expense Patricia paid during year 1 may she deduct as an itemized deduction?

On November 1, year 1, Jamie (who is single) purchased and moved into her principal residence. In the early part of year 2, Jamie was laid off from her job. On February 1, year 2, 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 year 2?