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Exam 14: Tax Consequences of Home Ownership

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Question 51

Multiple Choice

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Which of the following statements regarding a taxpayer's principal residence is true forthe 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 C)

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Question 52

Multiple Choice

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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 the choices are correct.

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

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Question 53

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

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?

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

In year 1, 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, year 4 the outstanding balance on the loan was $40,000. On January 1, year 4, 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 year 4, 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 year 4 on the new mortgage as home-related interest expense?

Harvey rents his second home. During the year, 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 for the year?

Michael (single) purchased his home on July 1, 2010. He lived in the home as his principal residence until July 1, 2018, 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 $322,500 gain. What amount of the gain is Michael allowed to exclude from his 2020 gross income?

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

When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to rental use is based on the number of rental days over rental days plus personal-use days.

Renting a residence may have nontax advantages over owning a home.

For a home to be considered a rental (nonresidence) property, a taxpayer must:

Kristen rented out her home for 5 days during the year for $9,700. She used the home for personal purposes for the other 360 days. She allocated the following home expenses to the rental use of the home: Kristen's AGI is $168,500 before considering the effect of the rental activity. What is Kristen's AGI after considering the tax effect of the rental use of her home?

Taxpayers with home offices who use the actual expense method for computing home office expenses must allocate indirect expenses of the home between personal use and home office use. Only expenses allocated to the home office use are deductible.

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.

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.

Several years ago, Chara acquired a home that she vacationed in part of the time and she rented part of the time. During the current year Chara:Personally stayed in the home for 14 days,Rented it at full fair market value to her parents for eight days,Rented it to her sister for five days at half price,Rented it to her friend at a discounted rate for three days,Rented it to another friend at fair market value for six days,Rented the home to third parties for 42 days at the market rate,Did repair and maintenance work for three days to keep the home ready for renters, andMarketed the property and made it available for rent for 120 days during the year even though it was not rented during this time. How many days of personal use and how many days of rental use did Chara experience on the property during the year?

Which of the following statements regarding the home mortgage interest expense deduction is false for a single taxpayer?

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

Which of the following statements regarding the IRS and/or Tax Court approaches to allocating home-related expenses between rental use and personal use is correct?