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Leticia purchased a home on July 1, 2017 for $200,000. She paid $180,000 down and financed the remaining $20,000. On January 1, 2019 when the outstanding balance of her mortgage was $15,000 and her home was valued at $300,000, Leticia refinanced her home for $200,000. With the $200,000 loan, she paid off the remaining $15,000 balance of her original mortgage, she used $35,000 to substantially improve her home and she used the remaining $150,000 for purposes unrelated to her home. During 2021, Leticia made interest-only payments of $15,000 on the loan. What amount of the $15,000 interest expense is Leticia allowed to deduct in year 2021?

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$3,750.
$15,000 × 50,000/200,000. Of the...

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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 are correct.

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

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Which of the following statements regarding personal and/or rental use of a home is false?


A) A day for which a taxpayer rents a home to an unrelated party for less than the property's fair market value is considered to be a personal use day.
B) A day for which a taxpayer rents a home to a relative for full fair market value is considered to be a rental use day (home is not the relative's principal residence) .
C) A day for which an unrelated non-owner stays in the home under a vacation exchange arrangement is considered to be a personal use day.
D) A day for which the home is available for rent but is not occupied does not count as a personal use or a rental use day.

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

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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.

A) True
B) False

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In terms of allocating expenses between rental use and personal use, the IRS method of allocation tends to allocate more expenses to personal use than does the Tax Court method of allocation.

A) True
B) False

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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 are correct.

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

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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?

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$3,333 gain recognized.
$170,0...

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


A) rent the property for 15 days or more during the year.
B) use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented.
C) use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented.
D) rent the property for 1 day or more during the year and use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented.
E) rent the property for 15 days or more during the year and use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented.

F) B) and E)
G) A) and B)

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D

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.

A) True
B) False

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Jacoby purchased a home in 2016 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. He made interest only payments for 2016, 2017, and 2018. In 2018, Jacoby can deduct interest expense on $1,100,000 of the loan principal.

A) True
B) False

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Careen owns a condominium near Newport Beach in California. This year, she incurs the following expenses in connection with her condo: Careen owns a condominium near Newport Beach in California. This year, she incurs the following expenses in connection with her condo: During the year, Careen rented the condo for 90 days, receiving $20,000 of gross income. She personally used the condo for 50 days. Assuming Careen uses the IRS method of allocating expenses to rental use of the property. What is Careen's net rental income for the year? During the year, Careen rented the condo for 90 days, receiving $20,000 of gross income. She personally used the condo for 50 days. Assuming Careen uses the IRS method of allocating expenses to rental use of the property. What is Careen's net rental income for the year?

Correct Answer

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$5,633
See...

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When a taxpayer experiences a net loss from a nonresidence (rental property) :


A) the taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources.
B) the loss is fully deductible against the taxpayer's ordinary income no matter the circumstances.
C) if the taxpayer is not an active participant in the rental, the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income.
D) if the taxpayer is not allowed to deduct the loss due to the passive activity loss limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

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

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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?


A) Kenneth would include the rental receipts in gross income and deduct the rental expenses for AGI.
B) Kenneth would exclude the rental receipts from gross income and deduct the rental expenses for AGI.
C) Kenneth would include the rental receipts in gross income and would not deduct the rental expenses because he used the residence for personal purposes for most of the year.
D) Kenneth would exclude the rental receipts, and he would not deduct the rental expenses.

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

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D

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, and -Marketed 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?

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30 days personal; 51...

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Jason and Alicia Johnston purchased a home in Austin, Texas for $500,000. They moved into the home on September 1, year 0. They lived in the home as their primary residence until July 1 of year 5 when they sold the home for $800,000. What amount of the $300,000 gain are they allowed to exclude? (Assume not married filing separately.)

Correct Answer

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$300,000
They qualif...

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A married couple filing a joint tax return is eligible to exclude up to $500,000 of gain realized on the sale of a personal residence if both spouses meet the ownership test and at least one spouse meets the use test.

A) True
B) False

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False

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


A) Deductible home office expenses of employees are not deductible.
B) Deductible home office expenses of employees are miscellaneous itemized deductions subject to the 2 percent floor.
C) Deductible home office expenses of employees are for AGI deductions limited to gross income from the business.
D) Deductible home office expenses of employees are for AGI deductions not limited to gross income from the business.

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

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


A) Taxpayers who may deduct all of the interest paid on up to $1,000,000 of acquisition debt if the debt occurred in January of 2017.
B) Taxpayers may deduct all of the interest paid on up to $750,000 of acquisition debt if the debt occurred in January of 2018.
C) If, in 2018, a taxpayer refinances acquisition debt that was originally incurred in January of 2017, the taxpayer may deduct the interest on up to only $750,000 of the refinanced loan.
D) None of the choices is false.

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

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A taxpayer who is financing his personal residence and who pays points on the loan in the form of prepaid interest generally must deduct the points over the life of the loan no matter whether the loan is an original loan or a refinance of an existing loan.

A) True
B) False

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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.

A) True
B) False

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