Question 1

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.

Accepted Answer

According to IRS Publication 523, a taxpayer can still qualify for the home sale exclusion as long as they owned and used the home as their main residence for at least 2 out of the 5 years leading up to the sale. The fact that they have moved out and are renting the home at the time of the sale does not disqualify them from the exclusion. However, certain limitations may apply if the property is not their primary residence at the time of sale.

Question 2

For tax purposes a dwelling unit is a residence if the taxpayer's number of personal-use days of the unit is more than 10 days.

Accepted Answer

False

Question 3

A taxpayer who sells a principal residence that has been used as a rental property after 2005 will not be allowed to exclude the portion of the gain attributable to depreciation even if the taxpayer meets the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount.

Accepted Answer

The statement is true, as per IRS rules. If a taxpayer sells a principal residence that has been converted to a rental property and has claimed depreciation deductions, they will be required to recapture the depreciation and pay taxes on the gain attributable to it, even if they meet the ownership and use tests for the maximum exclusion amount.

Question 4

A taxpayer may be required to include in gross income the gain the taxpayer realizes when she sells her principal residence.

Accepted Answer

In some cases, a taxpayer may be required to include in gross income any gain they realize from selling their principal residence, such as if they have used the home for business or rental purposes. However, there are also certain exclusions and exceptions that may apply.

Question 5

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.

Accepted Answer

A day when the home is available for rent but not actually rented out does not count as a day of personal use; it is considered a day of rental availability, not personal or rental use.

Question 6

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.

Accepted Answer

The IRS allows for non-continuous periods of ownership and use for the purpose of determining whether a taxpayer qualifies to exclude gain on the sale of a principal residence. The ownership and use periods also do not need to cover the same two-year period.

Question 7

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.

Accepted Answer

The answer of A married couple filing a joint tax...

Question 8

Jacoby purchased a home in 2017 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 2017, 2018, and 2019. In 2019, Jacoby can deduct interest expense on $1,100,000 of the loan principal.

Accepted Answer

The answer of Jacoby purchased a home in 2017 for...

Question 9

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

Accepted Answer

This is false. Taxpayers are allowed to exclude gain on the sale of a principal residence up to $250,000 (or up to $500,000 for married couples filing jointly) once every two years as long as they meet certain ownership and use requirements. There is no limit to the number of times a taxpayer can claim this exclusion as long as they meet the requirements.

Question 10

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.

Accepted Answer

If a taxpayer has nonqualified use of the home before selling, she may have to allocate the gain between the period of qualified use and the period of nonqualified use. This will limit the amount of gain that can be excluded from taxation.

Question 11

A taxpayer who rents out a home for at least one day and does not use a home for personal purposes for more than 14 days during the year is ineligible to deduct any home mortgage interest expense on a loan secured by the home.

Accepted Answer

According to the IRS, if a taxpayer rents out their home for at least one day and does not use it for personal purposes for more than 14 days during the year, they are considered to be operating a rental property and are not eligible to deduct home mortgage interest expense on a loan secured by the home.

Question 12

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.

Accepted Answer

The taxpayer must have used the home as their principal residence for at least two out of the five years leading up to the sale, but they do not need to be living in the home at the time of the sale.

Question 13

The ownership test for excluding gain on the sale of a principal residence requires the taxpayer to have owned the property for three or more years during the five-year period ending on the date of sale.

Accepted Answer

The ownership test for excluding gain on the sale of a principal residence requires the taxpayer to have owned the property for at least two years during the five-year period ending on the date of sale.

Question 14

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.

Accepted Answer

The Internal Revenue Code allows for special circumstances, such as health issues or job location changes, to qualify a taxpayer for an exclusion of the entire realized gain on the sale of a principal residence, even if they do not meet the ownership and use tests. This is known as the "unforeseen circumstances" exception.

Question 15

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.

Accepted Answer

For tax purposes, a day of rental use only counts when the home is actually rented out to someone and not merely available for rent.

Question 16

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

Accepted Answer

Renting a residence may have advantages such as flexibility to move easily, no maintenance or repair responsibilities, and lower upfront costs compared to owning a home. While there may be certain tax benefits to owning a home, such as deducting mortgage interest and property taxes, these factors do not necessarily outweigh the non-tax advantages of renting.

Question 17

Taxpayers meeting certain requirements may be allowed to exclude at least a portion of gain realized on the sale of a principal residence.

Accepted Answer

The IRS allows taxpayers to exclude up to $250,000 of gain ($500,000 for married couples filing jointly) on the sale of their principal residence if they meet certain requirements, such as having owned and used the home as their main residence for at least two out of the past five years.

Question 18

The tax law places a fixed dollar limit on the amount of home mortgage interest a taxpayer may deduct in a particular year.

Accepted Answer

The tax law does not place a fixed dollar limit on the amount of home mortgage interest a taxpayer may deduct. Instead, it limits the deduction to the interest paid on up to $750,000 ($375,000 if married filing separately) of mortgage debt incurred after December 15, 2017, to buy, build, or substantially improve a primary or secondary home. The limit was $1 million ($500,000 if married filing separately) for loans taken out before December 16, 2017.

Question 19

A personal residence is not a capital asset.

Accepted Answer

A personal residence is considered a capital asset under the tax code.

Question 20

In general terms, the tax laws favor taxpayers who own a principal residence over those who rent a principal residence.

Accepted Answer

The tax laws offer several benefits to homeowners, including deductions for mortgage interest and real estate taxes. Renters do not receive these deductions. Additionally, homeowners can potentially earn tax-free capital gains on the sale of their primary residence, while renters do not have this opportunity.

Quiz 14: Tax Consequences of Home Ownership