FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 14: Tax Consequences of Home Ownership

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements regarding a taxpayer's principal residence is true for the purposes of determining whether the taxpayer is eligible to exclude gain realized on the sale of the residence?

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 the choices are correct.

E) All of the above
F) A) and B)

Correct Answer

verified

Show Answer

Question 32

True/False

Review LaterAdd Note

Review Later

For tax purposes a dwelling unit is a residence if the taxpayer's number of personal-use days of the unit is more than 10 days.

A) True
B) False

Correct Answer

verified

Show Answer

Question 33

Multiple Choice

Review LaterAdd Note

Jessica purchased a home on January 1, 2019, for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a loan, secured by the residence, at 6 percent. During 2019 and 2020, Jessica made interest-only payments on this loan of $18,000 (each year) . On July 1, 2019, when her home was worth $500,000, Jessica borrowed an additional $125,000 secured by the home at an interest rate of 8 percent. During 2019, she made interest-only payments on the second loan in the amount of $5,000. During 2020, she made interest-only payments on the second loan in the amount of $10,000. What is the maximum amount of the $28,000 interest expense Jessica paid during 2020 that she may deduct as an itemized deduction if she used the proceeds of the second loan to finish the basement in her home and landscape her yard? (Assume not married filing separately.)

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

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 direct 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?

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 32 percent. What is Jasper's break-even point in years? (For simplicity, ignore time value of money concerns.)

Rayleen owns a condominium near Orlando, Florida. This year, she incurs the following expenses in connection with her condo: During the year, Rayleen rented the condo for 130 days and she received $25,000 of rental receipts. She did not use the condo at all for personal purposes during the year. Rayleen is considered to be an active participant in the property. Rayleen's AGI from all sources other than the rental property is $130,000. Rayleen does not have passive income from any other sources. What is Rayleen's AGI after accounting for the rental property?

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

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

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?

Taxpayers meeting certain requirements may be allowed to exclude at least a portion of gain realized on the sale of a principal residence.

Patrick purchased a home on January 1, 2019, 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 2019, Patrick made interest-only payments on the loan of $30,000. On July 1, 2019, when his home was worth $600,000, Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent. He used the $75,000 loan proceeds to purchase a new car. During 2019, he made interest-only payments on this loan in the amount of $3,000. What amount of the $33,000 interest expense that Patrick paid during 2019 may he deduct as an itemized deduction?

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

In general, total deductible home office expenses are limited to the gross income derived from the business minus business expenses unrelated to the home (that is, they are limited to net Schedule C income before home office expenses).

Which of the following statements regarding limitations on the deductibility of home office expenses of self-employed taxpayers is correct?

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

Andrew Whiting (single)purchased a home in Boise, Idaho, for $300,000. He moved into the home on July 1 of year 1. He lived in the home as his primary residence until November 1, year 2, when he sold the home for $470,000. Andrew sold the home because he was changing jobs and his new job was in a different state. What amount of gain must Andrew recognize on the home sale in year 2?

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

Michael (single) purchased his home on July 1, 2009. He lived in the home as his principal residence until July 1, 2017, when he moved out of the home, and rented it out until July 1, 2018, when he moved back into the home. On July 1, 2019, he sold the home and realized a $300,000 gain. What amount of the gain is Michael allowed to exclude from his 2019 gross income?

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 2022, 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 acquisition indebtedness for the purposes of determining the deduction for home mortgage interest? (Assume not married filing separately.)