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Exam 14: Tax Consequences of Home Ownership

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Question 31

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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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Question 32

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Rafael and Sandra Gonzalez purchased a home on January 1 of year 1 for $400,000 by paying $40,000 down and borrowing the remaining $360,000 with a 6 percent loan secured by the home. The loan requires interest-only payments for the first five years. In year 2, when the home was valued at $400,000, Rafael and Sandra took out a second loan secured by the home for $80,000 to fund expenses unrelated to the home. The interest rate on the second loan is 8 percent. In year 2, Rafael and Sandra paid $21,600 of interest expense on the first loan and $6,400 of interest on the second loan. What is the maximum amount of the $28,000 of interest expense may Rafael and Sandra deduct in year 2?

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Question 33

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

Ashton owns a condominium near San Diego, California. This year, he incurs the following expenses in connection with his condo: $\begin{array} { l r } \text { Insurance } & \$ 1,300 \\\text { Mortgage interest } & 8,000 \\\text { Property taxes } & 2,000 \\\text { Repairs and maintenance } & 900 \\\text { Utilities } & 2,200 \\\text { Depreciation } & 10,000\end{array}$ During the year, Ashton rented the condo for 120 days and he received $24,000 of rental receipts. He did not use the condo at all for personal purposes during the year. Ashton is considered to be an active participant in the property. Ashton's AGI from all sources other than the rental property is $120,000. Ashton does not have passive income from any other sources. What is Ashton's AGI?

Jennifer owns a home that she rents for 364 days and uses for personal purposes for one day. Jennifer is required to allocate expenses associated with the home between rental and personal use.

Don owns a condominium near Orlando, California. This year, he incurs the following expenses in connection with his condo: $\begin{array} { l r } \text { Insurance } & \$ 1,300 \\\text { Mortgage interest } & 10,000 \\\text { Property taxes } & 3,000 \\\text { Repairs and maintenance } & 900 \\\text { Utilities } & 2,200 \\\text { Depreciation } & 12,000\end{array}$ During the year, Don rented the condo for 70 days and he received $17,400 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 $140,000. Don does not have passive income from any other sources. What is Don's AGI?

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

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.

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?

A taxpayer can qualify for the home sale exclusion even if she has moved out of the home and is renting the home to another at the time of the sale.

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions.

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

In 2012, 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 2014, Jaspreet made interest only payments of $6,000 on the $100,000 loan. On January 1, 2014, 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 2014, 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?

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

Kristen rented out her home for 10 days during the year for $5,000. She used the home for personal purposes for the other 355 days. She allocated the following home expenses to the rental use of the home: $\begin{array}{lr}\text { Insurance } & \$ 50 \\\text { Mortgage interest } & 100 \\\text { Property taxes } & 30 \\\text { Repairs and maintenance } & 150 \\\text { Utilities } & 40 \\\text { Depreciation } & 600\end{array}$ Kristen's AGI is $120,000 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?

On March 31, 2014, 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 2014 for her points paid?

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

Tyson owns a condominium near Laguna Beach, California. This year, he incurs the following expenses in connection with his condo: $\begin{array} { l r } \text { Insurance } & \$ 1,000 \\\text { Mortgage interest } & 7,500 \\\text { Property taxes } & 3,200 \\\text { Repairs and maintenance } & 800 \\\text { Utilities } & 1,700 \\\text { Depreciation } & 5,700\end{array}$ During the year, Tyson rented the condo for 100 days, receiving $25,000 of gross income. He personally used the condo for 60 days. Assuming Tyson uses the Tax Court method of allocating expenses to rental use of the property. What is Tyson's net rental income for the year?

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

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