Exam 14: Tax Consequences of Home Ownership

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.

A taxpayer who purchases real property during the year is allowed to deduct the property taxes on that property for the entire year.The deduction is based on proportion of the year the taxpayer lived in the home no matter who actually pays the tax.

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) ?

Depending on AGI,taxpayers may be able to deduct mortgage insurance premiums as a for AGI deduction.

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

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

Lauren purchased a home on January 1,2013 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.During 2013,Lauren made interest-only payments on the loan.On July 1,2013,when her home was valued at $500,000,she borrowed an additional $150,000,secured by the residence.During 2013,she made interest-only payments on the second loan.Which of the following statements regarding the deductibility of the interest Lauren paid is correct (assume she uses the chronological order of the loans to determine deductible interest expense if a limitation applies) ?

In order to be eligible to exclude gain on the sale of a principal residence,the taxpayer must meet which of the following tests?

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?

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.

At most,a taxpayer is allowed to exclude gain on the sale of a principal residence once every five years no matter the circumstances.

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

The longer a taxpayer plans on living in a home without refinancing,the more likely it is that paying points to receive a reduced interest rate on the loan makes economic sense.

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.

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

When determining the number of days a taxpayer has rented a home during the year,any day when the home is available for rent but not actually rented out counts as a day of rental use.Days when a home is available for rent but not actually rented out do not count either as personal days or rental days.

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

On February 1,2013 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 2013 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?

Compared to the Tax Court method 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.The IRS Method uses the total personal and rental days as the denominator whereas the tax court method uses the entire year.The tax court method results in a small percentage allocated to rental days and larger percentage allocated to personal use.

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.