Question 1

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

Question 2

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

The nonqualified use of a home before selling may result in the taxpayer not being able to exclude all of the realized gain, even if they meet the ownership and use tests.

Question 3

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

False

Question 4

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 ($500,000 for married filing jointly) of gain realized on the sale of a principal residence.

Question 5

A personal residence is not a capital asset.

Accepted Answer

A personal residence is generally considered a capital asset and subject to capital gains tax if sold for a profit. There are some exceptions and nuances to this, such as if the residence has been used for business purposes, but in general, it is not true that a personal residence is not a capital asset.

Question 6

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

Accepted Answer

In some cases, a taxpayer may be required to pay tax on a gain realized from the sale of a principal residence, such as if the gain exceeds certain thresholds or if the taxpayer has not lived in the home for at least two out of the previous five years. However, there are also exemptions and deductions that may apply.

Question 7

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 8

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 9

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 10

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 according to IRS rules. The portion of gain attributable to the depreciation taken on the rental property is subject to depreciation recapture tax, which cannot be excluded under the home sale exclusion rules.

Question 11

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

Accepted Answer

The tax laws provide deductions and credits to homeowners for expenses such as mortgage interest, property taxes, and home improvements, which reduce their overall tax liability. Renters, on the other hand, do not receive these tax benefits. Therefore, the tax laws favor those who own a principal residence.

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 known as the "unforeseen circumstances" exception, which includes events like a change in employment, health, or unforeseeable circumstances such as divorce or multiple births from the same pregnancy. The taxpayer must also meet certain other eligibility requirements.

Question 13

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 14

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 15

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. The tax code allows you to exclude gain on the sale of a principal residence once every two years if certain conditions are met, such as having lived in the home for at least two of the previous five years.

Question 16

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 17

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 can be non-continuous and do not necessarily need to cover the same two-year period for the taxpayer to qualify for the exclusion of gain on the sale of their principal residence. However, there are certain requirements and limitations that need to be met.

Question 18

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

Accepted Answer

Renting a residence may have nontax advantages such as more flexibility to move, no responsibility for repairs and maintenance, and lower upfront costs.

Question 19

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

A taxpayer can still qualify for the home sale exclusion as long as she meets the ownership and use requirements (i.e. lived in the home for at least two of the past five years) during the five-year period leading up to the sale. Renting out the home does not disqualify the taxpayer as long as it was previously used as a primary residence.

Question 20

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

According to the IRS, a taxpayer can only deduct interest on a mortgage that is up to $750,000 (or $375,000 if married filing separately) for mortgages taken out after December 15, 2017. However, if the mortgage was taken out before that date, the limit is $1,000,000. In this scenario, it is not specified when Jacoby took out the loan, so we'll assume it was before December 15, 2017, which means he can deduct interest expense on $1,100,000 of the loan principal.

Quiz 14: Tax Consequences of Home Ownership