Question 1

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

This is correct as per the IRS rules for exclusion of gain from the sale of a principal residence. If the taxpayer has used the home for nonqualified purposes (such as renting out a portion of the home) before selling, a portion of the gain may not be eligible for exclusion.

Question 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.

Accepted Answer

As long as the taxpayer owned and used the property as her primary residence for at least two out of the five years before the sale, she can still qualify for the home sale exclusion even if she moved out and rented it at the time of the sale. However, there are certain limitations and the taxpayer should consult with a tax professional for further guidance.

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 who meet certain requirements such as owning and using the property as their principal residence for at least two of the preceding five years may be allowed to exclude up to $250,000 ($500,000 for married couples filing jointly) of gain realized on the sale of their principal residence.

Question 4

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 5

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 for determining the exclusion of gain on the sale of a principal residence do not need to be continuous or cover the same two-year period. However, there are certain requirements and limitations that must be met.

Question 6

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 7

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

Accepted Answer

Renting a residence may have nontax advantages such as flexibility to move, no responsibility for maintenance and repairs, and the ability to invest money in other ventures instead of tying it up in a home.

Question 8

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

This can occur if the sale is due to a change in employment, health reasons, or certain unforeseen circumstances such as a divorce or death of a spouse. The taxpayer may be able to claim a partial or full exclusion under the "unforeseen circumstances" exception.

Question 9

Jacoby purchases a home 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.Jacoby can deduct interest expense on $1,100,000 of the loan principal.

Accepted Answer

Interest expense on loans used to purchase, build or improve a qualified residence is generally deductible, subject to certain limitations. In this case, Jacoby can deduct interest expense on $1,100,000 of the loan principal because that is the portion of the loan used to purchase the home. The remaining $250,000 of the loan may not be deductible if it was used for other purposes.

Question 10

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 11

A taxpayer who rents out a home for at least one day and does not use a home for personal purposes for at least 15 days during the year is ineligible to deduct any qualified residence interest expense on a loan secured by the home.

Accepted Answer

This is true according to the IRS rules regarding the deduction of qualified residence interest expenses. If a taxpayer rents out a home for at least one day and does not use it for personal purposes for at least 15 days during the year, they are not eligible to deduct any qualified residence interest expense on a loan secured by the home.

Question 12

A taxpayer who sells a principal residence that has been used (or is being used)as a rental property since 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

According to the IRS rules, a taxpayer who sells a principal residence that has been used as a rental property since 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. This rule applies to sales after May 6, 1997, regardless of how long the homeowner lived in the property as their primary residence.

Question 13

A personal residence is not a capital asset.

Accepted Answer

A personal residence is considered a capital asset under the tax code, although it may qualify for certain exclusions or deductions.

Question 14

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.

Accepted Answer

The number of days to determine residence status is fourteen days.

Question 15

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 16

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

Accepted Answer

In certain circumstances, a taxpayer may be required to include in gross income any gain realized when selling their principal residence, such as if they have not owned and used the property as their main home for a minimum of two out of the previous five years. However, there are certain exemptions and exclusions that may apply, such as the primary residence exclusion under IRC section 121.

Question 17

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 18

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

Accepted Answer

This is because homeowners are able to claim deductions such as mortgage interest and property taxes on their tax returns, while renters cannot. Additionally, homeowners may be eligible for capital gains exclusions when they sell their primary residence.

Question 19

The tax laws place a fixed dollar limit on the amount of qualified residence interest a taxpayer may deduct in a particular year.

Accepted Answer

The answer of The tax laws place a fixed dollar...

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 may qualify for exclusion of gain on sale of a principal residence more than once in five years, as long as they meet certain qualifications, such as a change in place of employment or health reasons.

Quiz 14: Tax Consequences of Home Ownership