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Exam 14: Tax Consequences of Home Ownership

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Question 31

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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 to change 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?

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$0 gain recognized.
$150,000 gain realiz...

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Question 32

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

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B) False

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Question 33

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Expenses of a vacation home allocated to rental use are deductible for AGI.

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

Jason and Alicia Johnston purchased a home in Austin, Texas, for $565,000. They moved into the home on September 1, year 0. They lived in the home as their primary residence until July 1 of year 5, when they sold the home for $678,000. What amount of the $113,000 gain are they allowed to exclude? (Assume married filing jointly.)

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:

Taxpayers who use a vacation home for both personal and rental use generally must allocate expenses associated with the home between personal and rental use.

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

Jessica purchased a home on January 1, 2020, 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 2020 and 2021, Jessica made interest-only payments on this loan of $18,000 (each year) . On July 1, 2020, 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 2020, she made interest-only payments on the second loan in the amount of $5,000. During 2021, 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 2021 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.)

Shantel owned and lived in a home for five years before marrying Daron. Shantel and Daron lived in the home for two years before selling it at a $700,000 gain. Shantel was the sole owner of the residence until it was sold. What is the maximum amount of gain that Shantel and Daron may exclude?

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

Ethan (single) purchased his home on July 1, 2010. 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, 2019, when he moved back into the home. On July 1, 2020, he sold the home and realized a $233,500 gain. What amount of the gain is Ethan allowed to exclude from his gross income?

Darren (single)purchased a home on January 1, 2016, for $582,000. Darren lived in the home as his primary residence until January 1, 2018, when he began using the home as a vacation home. He used the home as a vacation home until January 1, 2019. (He used a different home as his primary residence from January 1, 2018, to January 1, 2019.)On January 1, 2019, Darren moved back into the home and used it as his primary residence until January 1, 2020, when he sold the home for $727,500. What amount of the $145,500 gain Darren realized on the sale must he recognize for tax purposes in 2020?

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 forthe purposes of determining the deduction for home mortgage interest? (Assume not married filing separately.)

Don owns a condominium near Orlando, California. This year, he incurs the following expenses in connection with his condo: During the year, Don rented the condo for 70 days and he received $9,240 of rental receipts. He did not use the condo at all for personal purposes during the year. Don is considered to be an active participant in the property. Don's AGI from all sources other than the rental property is $114,500. Don does not have passive income from any other sources. What is Don's AGI?

Jasper is looking to purchase a new home for $340,000. He is paying $68,000 as a down payment on the home and financing the remaining $272,000 with a loan secured by the home. He has the option of (1)paying no discount points on the loan and paying interest at 7.8 percent or (2)paying one discount point on the loan and paying interest of 6.8 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 limitations on the deductibility of home office expenses of employees is correct?

Leticia purchased a home on July 1, 2018, for $200,000. She paid $180,000 down and financed the remaining $20,000. On January 1, 2020, when the outstanding balance of her mortgage was $15,000 and her home was valued at $300,000, Leticia refinanced her home for $200,000. With the $200,000 loan, she paid off the remaining $15,000 balance of her original mortgage, she used $35,000 to substantially improve her home, and she used the remaining $150,000 for purposes unrelated to her home. During 2022, Leticia made interest-only payments of $15,000 on the loan. What amount of the $15,000 interest expense is Leticia allowed to deduct in year 2022?

Dawn (single) purchased her home on July 1, 2009. On July 1, 2019, Dawn moved out of the home. She rented out the home until July 1, 2020, when she sold the home and realized a $230,000 gain (assume none of the gain was attributable to depreciation) . What amount of the gain is Dawn allowed to exclude from her 2020 gross income?