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In certain circumstances,a taxpayer could rent her personal residence at a profit and not pay any tax on the income.

A) True
B) False

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Taxpayers are allowed to deduct real property taxes at the time they pay estimated real property taxes to an escrow account established by the lender for the taxpayer's property taxes.The deduction timing is based on when the actual taxes are paid to the taxing jurisdiction,not when the homeowner makes payments for taxes to the escrow account.

A) True
B) False

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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


A) Personal use of the home exceeds the taxpayer's rental use of the home.
B) Personal use of the home exceeds half of the taxpayer's rental use of the home.
C) Personal use of the home exceeds the lesser of 14 days or 10 percent of the taxpayer's rental use of the home.
D) Personal use of the home exceeds the greater of 14 days or 10 percent of the taxpayer's rental use of the home.

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

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Which of the following statements regarding the first time home buyer credit is correct?


A) Taxpayers who acquired a home in 2009 and claimed the credit are required to pay the credit back if they live in the home for less than 15 years.
B) Taxpayers who acquired a home in 2010 and claimed the credit are required to pay the credit back if they live in the home for less than 5 years.
C) Taxpayers who acquire a home in 2013 are not eligible for the credit.
D) None of these

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

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For determining whether a taxpayer qualifies to exclude gain on the sale of a principal residence,the periods of ownership and use need not be continuous nor do they need to cover the same two-year period.

A) True
B) False

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A taxpayer who otherwise meets the ownership and use tests may not be allowed to exclude all of her realized gain if the taxpayer has nonqualified use of the home before selling.

A) True
B) False

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


A) Deductible home office expenses are miscellaneous itemized deductions subject to the 2 percent of AGI floor.
B) Deductible home office expenses are miscellaneous itemized deductions not subject to the 2 percent floor.
C) Deductible home office expenses are for AGI deductions limited to gross income from the business minus non home office related expenses.
D) Deductible home office expenses are for AGI deductions and may be deducted without limitation.

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

Correct Answer

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Which of the following statements regarding the break-even point for paying discount points in order to get a lower interest rate on the loan is correct?


A) All else equal,the break-even point for paying points on an original mortgage is longer than the break-even point for paying points on a refinance.
B) All else equal,the break-even point for paying points on an original mortgage is longer for a taxpayer who does not make extra principal payments each year on the loan than for a taxpayer who does make additional principal payments each year on the loan.
C) All else equal,the break-even point for a taxpayer paying points on an original mortgage is longer when the taxpayer's marginal income tax rate increases in the years subsequent to the original financing compared to a taxpayer whose marginal tax rate does not change in the years subsequent to the year in which the loan is executed.
D) None of these statements is correct.

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

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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?


A) The Tax Court approach allocates more property tax and interest expense to rental use than does the IRS approach.
B) The Tax Court and the IRS approaches allocate the same amount of expenses other than interest expense and property taxes to rental use.
C) The IRS approach allocates interest expense and property taxes to rental use based on the ratio of the number of days of rental use to the total days of the year.
D) None of these statements is correct.

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

Correct Answer

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Taxpayers with home offices and 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 for AGI.

A) True
B) False

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Brady 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.Brady collected $20,000 of rental receipts during the year.Brady allocated $7,000 of interest expense and property taxes,$10,000 of other expenses,and $4,000 of depreciation expense to the rental use.What is Brady's net income from the property and what type and amount of expenses will he carry forward to next year,if any?


A) $0 net income.$1,000 depreciation expense carried forward to next year.
B) ($1,000) net loss.$0 expenses carried over to next year.
C) $0 net income.$1,000 of other expense carried over to next year.
D) $0 net income.$1,000 of interest expense and property taxes carried over to next year.

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

Correct Answer

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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.

A) True
B) False

Correct Answer

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Kimberly purchased a home on January 1,2012 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,at 6 percent.During 2012 and 2013 Kimberly made interest-only payments on the loan in the amount of $18,000 each year.On July 1,2012,when her home was worth $500,000,Kimberly borrowed an additional $125,000 secured by the home at an interest rate of 8 percent.During 2012,she made interest-only payments on this loan in the amount of $5,000 and during 2013,she made interest only payments on the loan in the amount of $10,000.What is the maximum amount of the $28,000 interest expense Kimberly paid during 2013 that she may deduct as an itemized deduction,if she used the proceeds of the second loan to pay off student loans from law school?


A) $0
B) $5,000
C) $18,000
D) $26,000
E) $26,353

F) B) and C)
G) C) and D)

Correct Answer

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Dawn (single) purchased her home on July 1,2004.On July 1,2012 Dawn moved out of the home.She rented out the home until July 1,2013 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 2013 gross income?


A) $0
B) $207,000
C) $225,000
D) $230,000

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

Correct Answer

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Patrick purchased a home on January 1,2013 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 2013 Patrick made interest-only payments on the loan of $30,000.On July 1,2013,when his home was worth $600,000 Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent.During 2013,he made interest-only payments on this loan in the amount of $3,000.What amount of the $33,000 interest expense Patrick paid during 2013 may he deduct as an itemized deduction?


A) $0
B) $3,000
C) $30,000
D) $33,000

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

Correct Answer

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On March 31,2013,Mary borrowed $200,000 to buy 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.What is Mary's 2013 deduction for her points paid?


A) $50
B) $150
C) $4,500
D) $6,000

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

Correct Answer

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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?


A) $0
B) $250,000
C) $500,000
D) $600,000

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

Correct Answer

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Which of the following statements regarding home-related transactions is correct?


A) If a taxpayer converts a home from personal use to rental use,the basis of the rental property is the greater of the basis of the property at the time of the conversion or the fair market value of the property at the time of the conversion.
B) If a taxpayer uses a residence as a rental property (and deducts depreciation expense against the basis of the property) and as a personal residence the taxpayer will not be allowed to exclude the entire amount of gain even if the taxpayer otherwise meets the ownership and use tests and the amount of the gain is less than the limit on excludable gain.
C) If a taxpayer converts a rental home to a principal residence,the taxpayer's basis in the principal residence is the greater of the basis of the home at the time of the conversion or the fair market value at the time of the conversion.
D) None of these statements is correct.

E) None of the above
F) All of the above

Correct Answer

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Ethan (single) purchased his home on July 1,2004.On July 1,2011 he moved out of the home.He rented the home until July 1,2013 when he moved back into the home.On July 1,2014 he sold the home and realized a $210,000 gain.What amount of the gain is Ethan allowed to exclude from his 2014 gross income?


A) $0
B) $168,000
C) $200,000
D) $210,000

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

Correct Answer

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Which of the following statements regarding the home office expense deduction is correct?


A) The amount of home office expense allowed under the simplified method of computing home office expenses is limited to a fixed amount no matter how much the income from the business and no matter how big the home office.
B) Taxpayers may choose to use the actual expense method for determining home office expenses in one year and choose the simplified method in a different year.
C) Under the simplified method of computing home office expenses,a taxpayer is not allowed to deduct any depreciation associated with a home as a home office expense.
D) All of these are correct.

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

Correct Answer

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