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Exam 14: Tax Consequences of Home Ownership

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Question 41

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Two years ago,Gabby purchased a new home 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.In 2013,Gabby made interest-only payments of $18,000 on the $300,000 loan.On January 1,2013,Gabby executed two home equity loans (both secured by the home) .The first was for $80,000 at an interest rate of 7 percent.The second home equity loan from a different bank was for $40,000 at an interest rate of 9 percent.In 2013,Gabby paid $5,600 of interest payments on the first home equity loan and $3,600 interest expense on the second.Gabby used the loan proceeds for purposes unrelated to the home.What is the maximum amount of interest expense Gabby can deduct on these loans as home related interest expense?

A) $18,000
B) $25,400
C) $25,905
D) $27,200

E) A) and B)
F) C) and D)

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Question 42

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Which of the following statements best describes the deductibility of real property taxes when a taxpayer sells real property during a year?

A) The owner of the property at the time the property taxes are due is responsible for paying all of the real property taxes on the property for the year.Consequently,this person is allowed to deduct all of the property taxes for the year.
B) Taxpayers are allowed to deduct the real property taxes they actually pay for the year.
C) Taxpayers are allowed to deduct the property taxes allocated to the portion of the year that they owned the property.
D) None of these statements is correct.

E) B) and C)
F) None of the above

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Question 43

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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 personal use.Days when a home is available for rent but not actually rented out do not count either as personal days or rental days.

The ownership test for excluding gain on the sale of a principal residence requires the taxpayer to have owned the property for three or more years during the five year period ending on the date of sale.The taxpayer must have owned the property for two or more years.

On July 1 of 2013,Elaine purchased a new home for $400,000.At the time of the purchase,it was estimated that the property tax bill on the home for the year would be $8,000 ($400,000 × 2%) .On the settlement statement,Elaine was charged $4,000 for the year in property taxes and the seller was charged $4,000.On December 31,Elaine discovered that the real property taxes on the home for the year were actually $9,000.Elaine wrote a $9,000 check to the local government to pay the taxes for that calendar year (Elaine was liable for the taxes because she owned the property when they became due) .What amount of real property taxes is Elaine allowed to deduct for 2013?

Amanda purchased a home for $1,000,000 in 2002 She paid $200,000 cash and borrowed the remaining $800,000.This is Amanda's only residence.Assume that in 2013 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.What is her total amount of qualifying home-related debt for tax purposes?

On March 31,2013,Mary borrowed $200,000 to refinance the original mortgage on her principal residence.Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent.The loan is for a 30-year period.How much can Mary deduct in 2013 for her points paid?

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

Three years ago,Abby 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 her home was worth $300,000,Abby refinanced the home by taking out a $120,000 mortgage at 5 percent.With the loan proceeds,she paid off the $40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home.During 2013,she made interest-only payments on the new loan of $6,000.What amount of the $6,000 interest expense on the new loan can Abby deduct in 2013 on the new mortgage as home related interest expense?

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

Taxpayers with high AGI are not allowed to deduct interest on qualifying home equity indebtedness.

On November 1,2013,Jamie (who is single) purchased and moved into her principal residence.In early 2014,Jamie was laid off from her job.On February 1,2014,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 2014?

Jacoby purchases a home for $1,500,000 by making a $150,000 down payment and by borrowing the remaining $1,350,000 with a loan secured by the home.Jacoby can deduct interest expense on $1,100,000 of the loan principal.The maximum amount of debt on which a taxpayer may deduct qualified residence interest is $1,100,000;$1,000,000 of acquisition indebtedness plus $100,000 of home-equity indebtedness.

Which of the following best describes a qualified residence for purposes of determining a taxpayer's deductible home mortgage interest expense?

Which of the following statements regarding limitations on the deductibility of home office expenses of employees is correct?

Two years ago,Jaspreet purchased a new home for $500,000 by making a down payment of $400,000 and financing the remaining $100,000 with a loan,secured by the residence,at 6 percent.In 2013,Jaspreet made interest only payments of $6,000 on the $100,000 loan.On January 1,2013,when his home was valued at $500,000 Jaspreet executed two home equity loans (both secured by the home) .The first was for $80,000 at an interest rate of 9 percent.The second home equity loan from a different bank was for $40,000 at an interest rate of 7 percent.In 2013,Jaspreet paid $7,200 of interest payments on the first home equity loan and $2,800 interest expense on the second.Jaspreet used the proceeds from the home-equity loans for purposes unrelated to the home.What is the maximum amount of interest expense Jaspreet can deduct on these loans as home related interest expense?

Jamison is self-employed and he works out of an office in his home.After allocating the home-related expenses between the business office and the rest of the home,which of the following statements regarding the sequence of deductibility of the expenses allocated to the home office business use is correct?

Taxpayers using the simplified method for computing home office expenses do not deduct depreciation expense for the home office.

Harvey rents his second home.During 2013,Harvey reported a net loss of $35,000 from the rental.If Harvey is an active participant in the rental and his AGI is $80,000,how much of the loss can he deduct against ordinary income in 2013?

What is the maximum amount of gain on the sale of principal residence a married couple may exclude from gross income?