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Exam 14: Tax Consequences of Home Ownership

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Question 41

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Heidi (single)purchased a home on January 1, 2010, for $400,000. She lived in the home as her primary residence until January 1, 2018, when she began using the home as a vacation home. She used the home as a vacation home until January 1, 2019. (She used a different home as her primary residence from January 1, 2018, to January 1, 2019.)On January 1, 2019, Heidi moved back into the home and used it as her primary residence until January 1, 2020, when she sold the home for $700,000. What amount of the $300,000 gain Heidi realized on the sale must she recognize for tax purposes in 2020?

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$50,000 gain recognized.
Post-2008 nonqu...

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Question 42

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Which of the following statements regarding the tax deductibility of points related to a home mortgage is correct?

A) Points paid in the form of a loan origination fee on an original home loan are deductible over the life of the loan.
B) Points paid in the form of prepaid interest on an original home loan are deductible over the life of the loan.
C) Points paid in the form of prepaid interest on a refinance are deductible over the life of the loan.
D) None of the choices are correct.

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

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Question 43

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On March 31, year 1, 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 year 1 deduction for her points paid?

On February 1, 2020, Stephen (who is single) sold his principal residence (home 1) at a $100,000 gain. He was able to exclude the entire gain on his 2020 tax return. Stephen purchased and moved into home 2 on the same day. Assuming Stephen lives in home 2 as his principal residence until he sells it, which of the following statements is true?

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.

Patricia purchased a home on January 1, 2017, for $1,440,000 by making a down payment of $100,000 and financing the remaining $1,340,000 with a loan, secured by the residence, at 6 percent. From 2017 through 2020, Patricia made interest-only payments on the loaneach year in the amount of $80,400. What amount of the $80,400 interest expensethat Patricia paid during 2020 may she deduct as an itemized deduction? (Assume not married filing separately.)

Under the tax law, a taxpayer's itemized deduction for home mortgage interest in any one particular year is limited to $10,000.

Amanda purchased a home for $820,000 in 2016. She paid $164,000 cash and borrowed the remaining $656,000. This is Amanda's only residence. Assume that in year 2022, when the home had appreciated to $1,230,000 and the remaining mortgage was $492,000, interest rates declined and Amanda refinanced her home. She borrowed $820,000 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.)

Jasper is looking to purchase a new home for $250,000. He is paying $50,000 as a down payment on the home and financing the remaining $200,000 with a loan secured by the home. He has the option of (1)paying no discount points on the loan and paying interest at 6.5 percent or (2)paying one discount point on the loan and paying interest of 5.5 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.)

To be allowed to exclude gain on the sale of a principal residence, the taxpayer selling the home must be using the home as a principal residence at the time of the sale.

Patrick purchased a home on January 1, 2020, 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 2020, Patrick made interest-only payments on the loan of $30,000. On July 1, 2020, when his home was worth $600,000, Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent.He used the $75,000 loan proceeds to purchase a new car. During 2020, he made interest-only payments on this loan in the amount of $3,000. What amount of the $33,000 interest expensethat Patrick paid during 2020 may he deduct as an itemized deduction?

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

Jessica purchased a home on January 1, 2020, for $560,000 by making a down payment of $220,000 and financing the remaining $340,000 with a loan, secured by the residence, at 6 percent. During 2020 and 2021, Jessica made interest-only payments on this loan of $20,400 (each year) . On July 1, 2020, when her home was worth $560,000, Jessica borrowed an additional $140,000 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 $5,600. During 2021, she made interest-onlypayments on the second loan in the amount of $11,200. What is the maximum amount of the $31,600 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.)

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. What is the maximum amount of gain that Larry and Darlene may exclude?

On April 1, year 1, 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 year 1 for her points paid?

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.

Taxpayers renting a home would generally report the rental income and expenses on Schedule E.

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 rental use.

Careen owns a condominium near Newport Beach in California. This year, she incurs the following expenses in connection with her condo: (Round your intermediate and final answer to whole number.) During the year, Careen rented the condo for 90 days, receiving $25,700 of gross income. She personally used the condo for 50 days. Careen itemizes deductions, and the sum of her itemized deduction for non-home business taxes and the real property taxes allocated to business use of the home is less than $10,000. Assume Careen uses the IRS method of allocating expenses to rental use of the property. What is Careen's net rental income for the year?

On November 1, year 1, Jamie (who is single) purchased and moved into her principal residence. In the early part of year 2, Jamie was laid off from her job. On February 1, year 2, Jamie sold the home at a $45,500 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 year 2?