Question 1

A taxpayer who sells a principal residence that has been used as a rental propertyafter 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

This is true based on the current tax laws regarding the exclusion of gain on the sale of a principal residence that has also been used as a rental property. Depreciation taken on the property will reduce the amount that can be excluded from capital gains taxes. This is true according to the IRS rules. The portion of the gain attributable to depreciation will be subject to depreciation recapture tax, which is taxed at a higher rate than the capital gains tax.

Question 2

A taxpayer is not allowed to deduct home mortgage interest on debt unless the debt was incurred to acquire or construct the home.

Accepted Answer

Taxpayers can also deduct home mortgage interest on debt incurred to substantially improve their home, in addition to debt incurred to acquire or construct the home.

Question 3

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

Taxpayers meeting certain requirements may be allowed to exclude up to $250,000 (or $500,000 if married filing jointly) of gain on the sale of a principal residence. This exclusion may be claimed once every two years. This is true. Taxpayers meeting certain requirements may be allowed to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) realized on the sale of a principal residence. The requirements include owning and using the home as a principal residence for at least two out of the five years preceding the sale, among other conditions.

Question 4

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

The answer of For tax purposes a dwelling unit is...

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

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 7

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 8

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 9

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 rules, a taxpayer can qualify for the home sale exclusion even if she has moved out of the home and is renting it out at the time of the sale, as long as she meets the ownership and use requirements (i.e. owned and lived in the home for at least 2 out of the 5 years preceding the sale). According to the IRS, a taxpayer can qualify for the home sale exclusion if they have owned and used the home as their primary residence for at least two out of the five years before the sale, even if they have moved out and are renting the home at the time of the sale. However, there are some limitations and exceptions, so it is recommended to consult a tax professional for more specific advice.

Question 10

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

Accepted Answer

Typically, any gain realized from the sale of a principal residence is considered taxable income and must be reported on the taxpayer's tax return. However, there are some exceptions and exclusions that may apply, such as the primary residence exclusion. Generally, the gain on the sale of a taxpayer's principal residence is taxable and must be included in gross income. However, there are certain exclusions and deductions available that can reduce or eliminate the tax liability on the gain.

Question 11

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 12

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

Accepted Answer

Renting a residence may offer advantages such as flexibility, avoidance of maintenance costs and repairs, and reduced financial commitment. These advantages are not related to tax benefits, but they still make renting a better option for some individuals over owning a home. Renting a residence may have nontax advantages, such as avoiding the costs of maintenance, repairs, property taxes, and insurance that come with homeownership. It also provides greater flexibility to move to a new location without having to sell a property first.

Question 13

A taxpayer who otherwise meets the ownership and use testson the sale of her principal residence 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 their home before selling, they may have to allocate a portion of their realized gain to the nonqualified use period and may not be able to exclude this portion from their taxable income. If a taxpayer has nonqualified use of their home before selling, they may only be able to exclude a portion of their realized gain from the sale of their principal residence based on the amount of time the property was used as a primary residence versus the amount of time it was used for nonqualified purposes.

Question 14

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 15

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

This is true as per the IRS rules. If the taxpayer is not using the home for personal purposes for more than 14 days during the year, then it is considered as a rental property and not a personal residence, and hence, the taxpayer cannot deduct any home mortgage interest expense on a loan secured by the home.

Question 16

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 periods of ownership and use do not need to be continuous, and they do not need to cover the same two-year period for the purposes of determining whether a taxpayer qualifies to exclude gain on the sale of a principal residence. The periods of ownership and use can be non-continuous and need not cover the same two-year period for the taxpayer to be eligible to exclude gain on the sale of a principal residence. However, there are certain limitations and rules that apply, such as the requirement that the taxpayer must have owned the property and used it as a primary residence for at least 2 out of the 5 years preceding the sale.

Question 17

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

If the sale is due to an unforeseen circumstance such as a job loss, divorce, or health issues, the taxpayer may be able to exclude the entire gain even if they did not meet the ownership and use tests. The taxpayer may still be eligible for the exclusion if the sale was due to unforeseeable circumstances such as a change in employment, health issues or other qualifying events listed in the tax code. In these cases, the taxpayer may qualify for a reduced exclusion based on the amount of time the property was used as their primary residence.

Question 18

A personal residence is not a capital asset.

Accepted Answer

A personal residence is typically considered a capital asset and subject to capital gains tax when sold. However, there are some exceptions and exclusions to this rule, such as the primary residence exclusion. A personal residence is considered a capital asset under the Internal Revenue Code, but it may sometimes be exempt from capital gains tax if certain criteria are met.

Question 19

Jacoby purchased a homein 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, 2019 and 2020. In 2020, Jacoby can deduct interest expense on $1,100,000 of the loan principal.

Accepted Answer

As of the tax laws in effect for the years mentioned, the IRS limits the mortgage interest deduction to interest paid on the first $750,000 of loan principal for loans taken out after December 15, 2017. Since Jacoby's loan exceeds this amount, he can only deduct interest on up to $750,000 of his loan principal, not $1,100,000.

Question 20

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 statement is false. Taxpayers are allowed to exclude gain on the sale of a principal residence once every two years if they meet certain requirements such as using the home as their primary residence for at least two of the past five years before selling. This statement is false. Taxpayers are allowed to exclude gain on the sale of a principal residence once every two years if they meet certain criteria, such as using the home as their primary residence for at least two of the past five years.

Quiz 14: Tax Consequences of Home Ownership