Question 1

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

This is because the loan interest is deductible only on the portion of the loan proceeds used to acquire, build, or substantially improve the home, and the maximum amount of debt taken out after December 15, 2017, that qualifies for the mortgage interest deduction is $750,000 for most taxpayers. Since Jacoby's loan is secured by the home and he used the proceeds to acquire the home, he can deduct interest expense on $1,100,000 of the loan principal.

Question 2

A personal residence is not a capital asset.

Accepted Answer

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

Question 3

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 nor do they need to cover the same two-year period for the purpose of determining whether a taxpayer qualifies to exclude gain on the sale of a principal residence. However, there are certain requirements related to the amount of time the taxpayer used the property as their primary residence that must be met in order to qualify for the exclusion.

Question 4

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 as long as they meet certain ownership and use tests. There is no five-year limitation, but the exclusion amount may be limited based on the length of time the property was used as a rental or as a second home.

Question 5

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

According to the IRS, if a taxpayer does not use a home for personal purposes for at least 15 days during the year and rents it out for at least one day, they are considered to be renting out the entire property. As a result, they are ineligible to deduct any qualified residence interest expense on a loan secured by the home.

Question 6

When determining the number of days a taxpayer has rented 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

The answer of When determining the number of days a...

Question 7

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

The taxpayer can still qualify for the home sale exclusion as long as she has owned and used the home as her primary residence for at least two out of the past five years prior to the sale.

Question 8

When determining the number of days a taxpayer has rented 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

Days when the home is available for rent but not actually rented out do not count as days of rental use; only days when the home is actually rented to a tenant count.

Question 9

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 10

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 11

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

This is true under certain circumstances, such as owning and using the home as a primary residence for at least two out of the five years preceding the sale. There are limitations and exceptions, so it's important to consult a tax professional for specific guidance.

Question 12

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 is achieved through certain exceptions such as unforeseen circumstances (such as a job loss, divorce, or health issues) or a change in employment location that qualifies the taxpayer for the moving expense deduction.

Question 13

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 14

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 can deduct mortgage interest and property taxes on their income tax returns, which can lower their taxable income, while renters do not have this option. Additionally, homeowners may qualify for certain tax credits related to home ownership, such as the home office deduction and capital gains exclusions when selling their home.

Question 15

A taxpayer may be required to pay tax on a gain the taxpayer realizes when she sells her principal residence.

Accepted Answer

While there are some exceptions and exclusions, a taxpayer may be required to pay tax on a gain realized from the sale of their principal residence if the gain exceeds certain limits or if they do not meet specific criteria, such as ownership and use requirements.

Question 16

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 17

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, they may not be able to exclude all of their realized gain, even if they meet the ownership and use tests. The amount of gain that can be excluded will be reduced based on the amount of nonqualified use.

Question 18

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

Accepted Answer

Renting a residence may provide flexibility in terms of living location, maintenance and repair responsibilities, and potential lower upfront costs. However, these advantages may vary depending on individual circumstances and preferences.

Question 19

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 20

A taxpayer who sells a principal residence that has been used (or is being used) as a rental property 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. If a taxpayer has used their principal residence as a rental property, they will not be allowed to exclude the portion of the gain attributable to depreciation, even if they meet the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount. This is because depreciation reduces the taxpayer's basis in the property, which in turn increases the amount of gain realized on the sale.

Quiz 14: Tax Consequences of Home Ownership