Exam 14: Tax Consequences of Home Ownership

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:

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

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

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 needed to move because he was changing jobs and his new job was located several hundred miles away. What amount of gain must Nelson recognize on the home sale in year 2?

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

A taxpayer who rents out a home for at least one day and does not use a home for personal purposes for at least 15 days during the year is ineligible to deduct any home mortgage interest expense on a loan secured by the home.

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?

Amanda purchased a home for $1,000,000 in 2016. She paid $200,000 cash and borrowed the remaining $800,000. This is Amanda's only residence. Assume that in year 2021 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 her amount of acquisition indebtedness for purposes of determining the deduction for home mortgage interest? (Assume not married filing separately.)

Patrick purchased a home on January 1, year 2018 for $600,000 by making a down payment of $100,000 and financing the remaining $500,000 with a 30-year loan, secured by the residence, at 6 percent. During 2018, Patrick made interest-only payments on the loan of $30,000. On July 1, 2018, when his home was worth $600,000 Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent. During 2018, he made interest-only payments on this loan in the amount of $3,000. What amount of the $33,000 interest expense Patrick paid during 2018 may he deduct as an itemized deduction if he used the $75,000 from the July 1 loan to purchase a car?

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.

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

The tax law places a fixed dollar limit on the amount of home mortgage interest a taxpayer may deduct in a particular year.

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

Patricia purchased a home on January 1, 2017 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 2017 and 2018, Patricia made interest-only payments on the loan of $66,000. What amount of the $66,000 interest expense Patricia paid during 2018 may she deduct as an itemized deduction? (Assume not married filing separately.)

A personal residence is not a capital asset.

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

Ashton owns a condominium near San Diego, California. This year, he incurs the following expenses in connection with his condo: During the year, Ashton rented the condo for 120 days and he received $24,000 of rental receipts. He did not use the condo at all for personal purposes during the year. Ashton is considered to be an active participant in the property. Ashton's AGI from all sources other than the rental property is $120,000. Ashton does not have passive income from any other sources. What is Ashton's AGI?

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 tax rate for long term capital gain is 15% what amount of tax will Alison pay on the $275,000 gain?

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

A taxpayer is not allowed to deduct home mortgage interest on debt unless the debt was incurred to acquire or construct the home.