Question 1

Taxpayers are allowed to deduct real property taxes at the time they pay estimated real property taxes to an escrow account established by the lender for the taxpayer's property taxes.The deduction timing is based on when the actual taxes are paid to the taxing jurisdiction,not when the homeowner makes payments for taxes to the escrow account.

Accepted Answer

The answer of Taxpayers are allowed to deduct real property...

Question 2

A self-employed taxpayer reports home office expenses as for AGI deductions while employees report home office expenses as from AGI deductions.

Accepted Answer

Self-employed taxpayers are able to deduct home office expenses as part of their adjusted gross income (AGI) on Schedule C as for AGI deductions. However, employees are only able to deduct home office expenses as from AGI deductions, which means they can only take the deduction if they itemize their deductions and meet certain requirements.

Question 3

In certain circumstances,a taxpayer could rent her personal residence at a profit and not pay any tax on the income.

Accepted Answer

If the taxpayer rents her personal residence for 14 days or less in a year, she does not have to report the rental income or pay any tax on it. Additionally, if the taxpayer rents her personal residence for less than 15 days and uses it for personal purposes for more than 14 days or 10% of the days it is rented (whichever is greater), the rental income is still tax-free.

Question 4

Taxpayers who purchased a home in 2008 and received the first-time home buyer tax credit must (with a few limited exceptions) pay the credit back to the government in subsequent years.

Accepted Answer

Taxpayers who received the first-time home buyer tax credit in 2008 are required to repay the credit to the government over a 15-year period, starting with their 2010 tax return. Exceptions to this repayment requirement include if the taxpayer sells their home to a related person or if their home is destroyed or condemned.

Question 5

Jorge owns a home that he rents for 360 days and uses for personal purposes for five days.Jorge is not required to allocate expenses associated with the home between rental and personal use.The home is considered a nonresidence.When property is used for even a day for personal purposes,the expenses must be allocated between the rental usage and personal usage.

Accepted Answer

When property is used for even a day for personal purposes, the expenses must be allocated between the rental usage and personal usage. So, Jorge should allocate expenses associated with the home between rental and personal use.

Question 6

Compared to the Tax Court method of allocating expenses between rental use and personal use,the IRS method tends to allocate more expenses to personal use than does the Tax Court method.The IRS Method uses the total personal and rental days as the denominator whereas the tax court method uses the entire year.The tax court method results in a small percentage allocated to rental days and larger percentage allocated to personal use.

Accepted Answer

The Tax Court method allocates more expenses to personal use because it uses the entire year as the denominator, resulting in a smaller percentage for rental use compared to the IRS method, which uses only the total personal and rental days.

Question 7

A tax loss from a rental home is a passive activity loss.

Accepted Answer

A tax loss from a rental home is considered a passive activity loss, as it comes from an activity in which the taxpayer does not materially participate. This type of loss may only be used to offset passive income, and any excess may be carried forward to future years.

Question 8

When allocating expenses of a vacation home between personal use and rental use,the amount of depreciation expense allocated to the rental use is always the ratio of rental days over rental days plus personal use days.

Accepted Answer

This is known as the "rental use percentage" and is used to calculate the portion of expenses that can be deducted as rental expenses on the owner's tax return.

Question 9

A taxpayer who is financing his personal residence and who pays points on the loan in the form of prepaid interest generally must deduct the points over the life of the loan no matter whether the loan is an original loan or a refinance of an existing loan.

Accepted Answer

For an original home mortgage, points paid upfront can generally be deducted in full in the year they are paid, while points paid on a refinanced mortgage must usually be deducted over the life of the loan.

Question 10

Jennifer owns a home that she rents for 364 days and uses for personal purposes for one day.Jennifer is required to allocate expenses associated with the home between rental and personal use.

Accepted Answer

According to IRS rules, when a taxpayer rents out a vacation property for less than 15 days during the year, she doesn't have to report any of her rental income. However, expenses associated with the home must still be allocated between rental use and personal use.

Question 11

Expenses of a vacation home allocated to rental use are deductible for AGI.

Accepted Answer

Expenses related to a vacation home that is rented out are deductible for AGI, provided that the homeowner meets certain criteria, such as renting out the property for at least 14 days and limiting personal use of the property. However, expenses related to personal use of the vacation home are not deductible.

Question 12

Taxpayers who use a vacation home for both personal and rental use generally must allocate expenses associated with the home to the personal use and the rental use.

Accepted Answer

The IRS requires taxpayers to allocate expenses based on the percentage of time the home was used for personal use versus rental use. This is typically done using a formula that takes into account the number of days rented versus the total number of days the home was used for both personal and rental purposes.

Question 13

When a taxpayer finances her personal residence,in general,she may not deduct points paid for loan origination fees,but she may deduct points paid as prepaid interest.

Accepted Answer

The answer of When a taxpayer finances her personal residence,in...

Question 14

Depending on AGI,taxpayers may be able to deduct mortgage insurance premiums as a for AGI deduction.

Accepted Answer

The answer of Depending on AGI,taxpayers may be able to...

Question 15

Taxpayers renting a home would generally report the rental income and expenses on Schedule E.

Accepted Answer

Taxpayers who rent out a property should generally report the rental income and expenses on Schedule E (Form 1040) when filing their income taxes.

Question 16

For regular tax purposes,a taxpayer may deduct interest expense on qualifying home equity indebtedness even if the taxpayer uses the loan proceeds for a purpose unrelated to the home.

Accepted Answer

According to the IRS, a taxpayer may deduct interest expense on qualifying home equity indebtedness up to $100,000, regardless of how the loan proceeds are used. This deduction is limited to the amount of the taxpayer’s equity in the home. However, the Tax Cuts and Jobs Act (TCJA) of 2017 has changed some of the rules regarding home equity interest deductions. Starting in tax year 2018, the interest deduction for home equity indebtedness is suspended until 2026, unless the proceeds were used to buy, build, or substantially improve the taxpayer’s home.

Question 17

The longer a taxpayer plans on living in a home without refinancing,the more likely it is that paying points to receive a reduced interest rate on the loan makes economic sense.

Accepted Answer

This statement is true because if the taxpayer plans on living in the home for a longer period of time, the savings from the reduced interest rate obtained by paying points will have a longer period of time to accumulate and offset the upfront cost of paying the points. This makes it more likely that paying points will be economically advantageous in the long run.

Question 18

A taxpayer who purchases real property during the year is allowed to deduct the property taxes on that property for the entire year.The deduction is based on proportion of the year the taxpayer lived in the home no matter who actually pays the tax.

Accepted Answer

The taxpayer can only deduct property taxes for the portion of the year they actually owned the property, not for the entire year.

Question 19

Taxpayers with high AGI are not allowed to deduct interest on qualifying home equity indebtedness.

Accepted Answer

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Question 20

Taxpayers with home offices and who use the actual expense method for computing home office expenses must allocate indirect expenses of the home between personal use and home office use.Only expenses allocated to the home office use are deductible for AGI.

Accepted Answer

This statement is correct. Taxpayers using the actual expense method for home office expenses must allocate indirect expenses, such as utilities and maintenance, between personal use and business use. Only the portion allocated to the home office use is deductible for AGI.

Quiz 14: Tax Consequences of Home Ownership