Exam 14: Tax Consequences of Home Ownership

Patricia purchased a home on January 1,2013 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 2013,Patricia made interest-only payments on the loan of $66,000.What amount of the $66,000 interest expense Patricia paid during 2013 may she deduct as an itemized deduction?

The tax laws place a fixed dollar limit on the amount of qualified residence interest a taxpayer may deduct in a particular year.A limitation is placed on the amount of acquisition indebtedness and home-equity indebtedness.

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?

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?

Three years ago,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 1,2013,the outstanding balance on the loan was $40,000.On January 1,2013,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 2013,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 2013 on the new mortgage as home related interest expense?

A tax loss from a rental home is a passive activity loss.

For tax purposes a dwelling unit is a residence if the taxpayer's number of personal use days of the unit is more than ten days.The number of days to determine residence status is fourteen days.

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?

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

Taxpayers renting a home would generally report the rental income and expenses on Schedule E.

Cameron (single) purchased and moved into his principal residence on July 1,2013.On June 1,2014,Cameron lost his job.Because he couldn't afford the payments on his new home,he sold it on July 1,2014 in order to move into some apartments across the street.On the sale of his principal residence,Cameron realized a $50,000 gain.How much of the gain is Cameron allowed to exclude from his 2014 gross income?

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

Ilene rents her second home.During 2013,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 2013?

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.The home is considered a nonresidence.When property is used for even a day for personal purposes,the expenses must be allocated between the rental usage and personal usage.

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

A personal residence is not a capital asset.

Jasper is looking to purchase a new home for $250,000.He is paying $50,000 as a down payment on the home and financing the remaining $200,000 with a loan secured by the home.He has the option of (1) paying no discount points on the loan and paying interest at 6.5 percent or (2) paying one discount point on the loan and paying interest of 5.5 percent on the loan.Both options require Jasper to make interest-only payments for the first five years of the loan and to pay the loan principal over the 25 years after that (it is a 30-year loan) .Jasper itemizes deductions irrespective of any interest expense he may pay.Jasper's marginal ordinary income tax rate is 28 percent.What is Jasper's break-even point in years (for simplicity,ignore time value of money concerns) ?

In certain circumstances,a taxpayer who does not meet the ownership and use test may still be allowed to exclude the entire realized gain on the sale of a principal residence.

A taxpayer who is financing his personal residence and who pays points on the loan in the form of prepaid interest generally must deduct the points over the life of the loan no matter whether the loan is an original loan or a refinance of an existing loan.

A taxpayer who sells a principal residence that has been used (or is being used) as a rental property will not be allowed to exclude the portion of the gain attributable to depreciation even if the taxpayer meets the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount.