Question 1

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.

Accepted Answer

A) True 
 B)False  True

Question 2

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.

Accepted Answer

A) True 
 B)False  False

Question 3

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) ?

Accepted Answer

A)  Depreciation expense,other expenses,property taxes and interest expense.
B)  Other expenses,depreciation expense,property taxes and interest expense.
C)  Property taxes and interest expense,depreciation expense,other expenses.
D)  Other expenses,property taxes and interest expense,depreciation expense.
E)  None of these statements is correct. E

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  A day for which a taxpayer rents a home to an unrelated party for less than the property's fair market value is considered to be a personal use day.
B)  A day for which a taxpayer rents a home to a relative for full fair market value is considered to be a rental use day.
C)  A day for which an unrelated non-owner stays in the home under a vacation exchange arrangement is considered to be a personal use day.
D)  A day for which the home is available for rent but is not occupied does not count as a personal use or a rental use day.

Question 6

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

Accepted Answer

A)  The taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources.
B)  The loss is fully deductible against the taxpayer's ordinary income no matter the circumstances.
C)  If the taxpayer is not an active participant in the rental,the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income.
D)  If the taxpayer is not allowed to deduct the loss due to the passive activity limitations,the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

Question 7

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) ?

Accepted Answer

A)  Lauren may deduct all of the interest on the first loan but she may deduct only two-thirds of the interest on the second loan unless she uses the loan proceeds to substantially improve the home.
B)  Lauren may deduct all of the interest on the first loan but she may deduct only two-thirds of the interest on the second loan no matter what she does with the proceeds of the second loan.
C)  Lauren may deduct all of the interest on the first loan or all of the interest on the second loan.
D)  Lauren may deduct all of the interest on the first loan and all of the interest on the second loan no matter what she does with the loan proceeds.Interest on a home equity loan is limited to $100,000,therefore,since she borrowed $150,000 only 2/3 of the interest is deductible ($100,000 ÷ $150,000 = 2/3)  .If the proceeds are used to improve the home,the debt is considered acquisition indebtedness.

Question 8

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

Accepted Answer

A)  Rental test
B)  Use test
C)  Ownership test
D)  Business use test
E)  Use test and Ownership test

Question 9

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?

Accepted Answer

A)  A taxpayer may have more than one principal residence at any one time.
B)  A taxpayer's principal residence may not be a houseboat.
C)  A taxpayer with more than one residence may annually elect which residence is considered to be the principal residence.
D)  None of these statements is true.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  Points paid in the form of a loan origination fee on an original home loan are deductible over the life of the loan.
B)  Points paid in the form of prepaid interest on an original home loan are deductible over the life of the loan.
C)  Points paid in the form of prepaid interest on a refinance are deductible over the life of the loan.
D)  None of these statements is correct.

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  A taxpayer is not allowed to deduct property taxes as the taxpayer makes monthly mortgage payments to an escrow account held by her mortgage company.
B)  Taxpayers are not allowed to deduct payments made for setting up water and sewer services.
C)  An individual deducts real property taxes on her principal residence as a for AGI deduction.
D)  Taxpayers are not allowed to deduct payments made for neighborhood sidewalks.

Question 18

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?

Accepted Answer

A)  Under no circumstance will Stephen be allowed to exclude gain on home 2 if he sells home 2 in 2014.
B)  Stephen will be eligible to exclude gain on home 2 only if he waits until 2018 to sell it.
C)  In certain circumstances,Stephen may be able to exclude gain on home 2 even if he sells home 2 in 2013.
D)  None of these is a true statement.If Stephen sells the home due to hardship circumstances,he could exclude gain recognized in 2013.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

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.

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)

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?

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

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.