Test Bank Docx Tax Consequences Of Home Ownership Ch.14

Taxation of Individuals, 11e (Spilker)

Chapter 14 Tax Consequences of Home Ownership

1) In general terms, the tax laws favor taxpayers who own a principal residence over those who rent a principal residence.

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

3) A personal residence is not a capital asset.

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

5) 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.

6) 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.

7) 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.

8) Taxpayers meeting certain requirements may be allowed to exclude at least a portion of gain realized on the sale of a principal residence.

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.

10) 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.

11) 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.

12) 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.

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.

14) 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.

15) A taxpayer who sells a principal residence that has been used as a rental property after 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.

16) At most, a taxpayer is allowed to exclude gain on the sale of a principal residence once every five years no matter the circumstances.

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.

18) The tax law places a fixed dollar limit on the amount of home mortgage interest a taxpayer may deduct in a particular year.

19) 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.

20) Jacoby purchased a home in 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, and 2019. In 2019, Jacoby can deduct interest expense on $1,100,000 of the loan principal. 

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

22) Taxpayers with high AGI are not allowed to deduct home mortgage interest expense.

23) Under the tax law, a taxpayer's itemized deduction for home mortgage interest in any one particular year is limited to $10,000.

24) 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.

25) 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.

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

27) A taxpayer who purchases real property during the year is allowed to deduct the property taxes on that property for the entire year in which the property was purchased.

28) 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.

29) The amount of a taxpayer's itemized deduction for all taxes combined, including state income taxes and real property taxes, is limited to $10,000 ($5,000 if married filing separately). 

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

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

32) When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to rental use is based on the number of rental days over rental days plus personal-use days.

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

34) In terms of allocating expenses between rental use and personal use, the IRS method of allocation tends to allocate more expenses to personal use than does the Tax Court method of allocation.

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

36) 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.

37) 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.

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

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

40) Taxpayers with home offices 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.

41) In general, total deductible home office expenses are limited to the gross income derived from the business minus business expenses unrelated to the home (that is, they are limited to net Schedule C income before home office expenses).

42) Taxpayers using the simplified method for computing home office expenses do not deduct depreciation expense for the home office use.

43) Serena is single. She purchased her principal residence three years ago. She lived in the home until she sold it at a $300,000 gain this year. Serena was allowed to exclude $250,000 of the $300,000 gain. What is the character of the $50,000 gain she was not able to exclude?

A) Ordinary income/gain.

B) Short-term capital gain.

C) Long-term capital gain.

D) Personal gain.

E) None of the choices are correct.

44) In order to be eligible to exclude gain on the sale of a principal residence, the taxpayer must meet which of the following test(s)?

A) Rental test.

B) Use test.

C) Ownership test.

D) Business use test.

E) Ownership and use test.

45) Which of the following statements regarding a taxpayer's principal residence is true for the purposes of determining whether the taxpayer is eligible to exclude gain realized on the sale of the residence?

A) A taxpayer may have more than one principal residence at any one time.

B) A taxpayer's principal residence may not be a houseboat.

C) A taxpayer with more than one residence may annually elect which residence is considered to be the principal residence.

D) None of the choices are correct.

46) Which of the following statements regarding the exclusion of gain on the sale of a principal residence is correct?

A) A taxpayer may not exclude gain if the taxpayer is renting the residence at the time of the sale.

B) A taxpayer may simultaneously own two homes that are eligible for the home sale exclusion.

C) A taxpayer must be living in a residence at the time it is sold to qualify for the exclusion.

D) For a married couple to qualify for the $500,000 exclusion, both spouses must meet the ownership and use tests.

47) Larry owned and lived in a home for five years before marrying Darlene. Larry and Darlene lived in the home for one year before selling it at a $600,000 gain. Larry was the sole owner of the residence until it was sold. How much of the gain may Larry and Darlene exclude?

A) $0.

B) $250,000.

C) $500,000.

D) $600,000.

48) Shantel owned and lived in a home for five years before marrying Daron. Shantel and Daron lived in the home for two years before selling it at a $700,000 gain. Shantel was the sole owner of the residence until it was sold. How much of the gain may Shantel and Daron exclude?

A) $0.

B) $250,000.

C) $500,000.

D) $700,000.

49) On February 1, 2019, Stephen (who is single) sold his principal residence (home 1) at a $100,000 gain. He was able to exclude the entire gain on his 2019 tax return. Stephen purchased and moved into home 2 on the same day. Assuming Stephen lives in home 2 as his principal residence until he sells it, which of the following statements is true?

A) Under no circumstance will Stephen be allowed to exclude gain on home 2 if he sells home 2 in 2020.

B) Stephen will be eligible to exclude gain on home 2 only if he waits until 2024 to sell it.

C) In certain circumstances, Stephen may be able to exclude gain on home 2 even if he sells home 2 in 2019.

D) None of the choices are correct.

50) On November 1, year 1, Jamie (who is single) purchased and moved into her principal residence. In the early part of year 2, Jamie was laid off from her job. On February 1, year 2, Jamie sold the home at a $35,000 gain. She sold the home because she found a new job in a different state. How much of the gain, if any, may Jamie exclude from her gross income in year 2?

A) $0.

B) $3,125.

C) $31,250.

D) $35,000.

51) Dawn (single) purchased her home on July 1, 2008. On July 1, 2018, Dawn moved out of the home. She rented out the home until July 1, 2019, when she sold the home and realized a $230,000 gain (assume none of the gain was attributable to depreciation). What amount of the gain is Dawn allowed to exclude from her 2019 gross income?

A) $0.

B) $23,000.

C) $207,000.

D) $230,000.

52) Michael (single) purchased his home on July 1, 2009. He lived in the home as his principal residence until July 1, 2017, when he moved out of the home, and rented it out until July 1, 2018, when he moved back into the home. On July 1, 2019, he sold the home and realized a $300,000 gain. What amount of the gain is Michael allowed to exclude from his 2019 gross income?

A) $0.

B) $225,000.

C) $250,000.

D) $300,000.

53) Ethan (single) purchased his home on July 1, 2009. He lived in the home as his principal residence until July 1, 2016, when he moved out of the home, and rented it out until July 1, 2018, when he moved back into the home. On July 1, 2019, he sold the home and realized a $210,000 gain. What amount of the gain is Ethan allowed to exclude from his gross income?

A) $0.

B) $168,000.

C) $200,000.

D) $210,000.

54) What is the maximum amount of gain on the sale of principal residence a married couple may exclude from gross income?

A) $0.

B) $25,000.

C) $250,000.

D) $500,000.

55) Which of the following statements regarding home-related transactions is correct?

A) If a taxpayer converts a home from personal use to rental use, the basis of the rental property is the greater of the basis of the property at the time of the conversion or the fair market value of the property at the time of the conversion.

B) If a taxpayer uses a residence as a rental property (and deducts depreciation expense against the basis of the property) and as a personal residence, the taxpayer will not be allowed to exclude the entire amount of gain even if the taxpayer otherwise meets the ownership and use tests and the amount of the gain is less than the limit on excludable gain.

C) If a taxpayer converts a rental home to a principal residence, the taxpayer's basis in the principal residence is the greater of the basis of the home at the time of the conversion or the fair market value at the time of the conversion.

D) None of the choices are correct.

56) When a taxpayer rents a residence for part of the year, the residence is not eligible as a qualified residence for the home mortgage interest expense deduction unless the taxpayer's:

A) personal use of the home exceeds the taxpayer's rental use of the home.

B) personal use of the home exceeds half of the taxpayer's rental use of the home.

C) personal use of the home exceeds the lesser of 14 days or 10 percent of the taxpayer's rental use of the home.

D) personal use of the home exceeds the greater of 14 days or 10 percent of the taxpayer's rental use of the home.

57) Which of the following best describes a qualified residence for the purposes of determining a taxpayer's deductible home mortgage interest expense?

A) Only the taxpayer's principal residence.

B) The taxpayer's principal residence and two other residences (chosen by the taxpayer).

C) The taxpayer's principal residence and one other residence (chosen by the taxpayer).

D) Any two residences chosen by the taxpayer.

58) Which of the following statements regarding the home mortgage interest expense deduction is correct?

A) Taxpayers may deduct interest expense on a limited amount of home equity indebtedness, but they may deduct interest expense on an unlimited amount of home acquisition indebtedness.

B) Taxpayers may deduct interest expense on a limited amount of acquisition indebtedness but an unlimited amount of home equity indebtedness.

C) What a bank might call a "home equity loan" the tax laws will call acquisition indebtedness if the loan is secured by the home and the taxpayer uses the loan proceeds to substantially improve the home.

D) None of the choices are correct.

59) Patrick purchased a home on January 1, 2019, for $600,000 by making a down payment of $100,000 and financing the remaining $500,000 with a 30-year loan, secured by the residence, at 6 percent. During 2019, Patrick made interest-only payments on the loan of $30,000. On July 1, 2019, when his home was worth $600,000, Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent. He used the $75,000 loan proceeds to purchase a new car. During 2019, he made interest-only payments on this loan in the amount of $3,000. What amount of the $33,000 interest expense that Patrick paid during 2019 may he deduct as an itemized deduction?

A) $0.

B) $3,000.

C) $30,000.

D) $33,000.

60) Patricia purchased a home on January 1, 2017, for $1,200,000 by making a down payment of $100,000 and financing the remaining $1,100,000 with a loan, secured by the residence, at 6 percent. From 2017 through 2019, Patricia made interest-only payments on the loan each year in the amount of $66,000. What amount of the $66,000 interest expense that Patricia paid during 2019 may she deduct as an itemized deduction? (Assume not married filing separately.)

A) $0.

B) $6,000.

C) $60,000.

D) $66,000.

61) Which of the following statements regarding the home mortgage interest expense deduction is false for a single taxpayer? 

A) Taxpayers may deduct all of the interest paid on up to $1,000,000 of acquisition debt if the debt occurred in January of 2017.

B) Taxpayers may deduct all of the interest paid on up to $750,000 of acquisition debt if the debt occurred in January of 2018.

C) If, in 2019, a taxpayer refinances acquisition debt that was originally incurred in January of 2017, the taxpayer may deduct the interest on up to only $750,000 of the refinanced loan.

D) None of the choices is false.

62) Jessica purchased a home on January 1, 2019, for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a loan, secured by the residence, at 6 percent. During 2019 and 2020, Jessica made interest-only payments on this loan of $18,000 (each year). On July 1, 2019, when her home was worth $500,000, Jessica borrowed an additional $125,000 secured by the home at an interest rate of 8 percent. During 2019, she made interest-only payments on the second loan in the amount of $5,000. During 2020, she made interest-only payments on the second loan in the amount of $10,000. What is the maximum amount of the $28,000 interest expense Jessica paid during 2020 that she may deduct as an itemized deduction if she used the proceeds of the second loan to finish the basement in her home and landscape her yard? (Assume not married filing separately.)

A) $0.

B) $10,000.

C) $26,353.

D) $26,000.

E) $28,000.

63) In year 1, Abby purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, year 4 the outstanding balance on the loan was $40,000. On January 1, year 4, when her home was worth $300,000, Abby refinanced the home by taking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the $40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During year 4, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in year 4 on the new mortgage as home-related interest expense?

A) $0.

B) $2,000.

C) $5,000.

D) $6,000.

64) Which of the following statements regarding the home mortgage interest expense deduction is correct?

A) The limit on acquisition indebtedness depends on filing status.

B) The limit on acquisition indebtedness applies to one (not multiple) loans.

C) The limit on acquisition indebtedness applies only in the year of acquisition.

D) Taxpayers who do not itemize deductions can still deduct home mortgage interest as a from AGI deduction.

65) Amanda purchased a home for $1,000,000 in 2016. She paid $200,000 cash and borrowed the remaining $800,000. This is Amanda's only residence. Assume that in year 2022, when the home had appreciated to $1,500,000 and the remaining mortgage was $600,000, interest rates declined and Amanda refinanced her home. She borrowed $1,000,000 at the time of the refinancing, paid off the first mortgage, and used the remainder for purposes unrelated to the home. What is her total amount of acquisition indebtedness for the purposes of determining the deduction for home mortgage interest? (Assume not married filing separately.)

A) $600,000.

B) $750,000.

C) $1,000,000.

D) $1,100,000.

66) On March 31, year 1, Mary borrowed $200,000 to buy her principal residence. Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. What is Mary's year 1 deduction for her points paid?

A) $50.

B) $150.

C) $4,500.

D) $6,000.

67) Which of the following statements regarding the tax deductibility of points related to a home mortgage is correct?

A) Points paid in the form of a loan origination fee on an original home loan are deductible over the life of the loan.

B) Points paid in the form of prepaid interest on an original home loan are deductible over the life of the loan.

C) Points paid in the form of prepaid interest on a refinance are deductible over the life of the loan.

D) None of the choices are correct.

68) Which of the following statements regarding the break-even point for paying discount points in order to get a lower interest rate on the loan is correct?

A) All else equal, the break-even point for paying points on an original mortgage is longer than the break-even point for paying points on a refinance.

B) All else equal, the break-even point for paying points on an original mortgage is longer for a taxpayer who does not make extra principal payments each year on the loan than for a taxpayer who does make additional principal payments each year on the loan.

C) All else equal, the break-even point for a taxpayer paying points on an original mortgage is longer when the taxpayer's marginal income tax rate increases in the years subsequent to the original financing compared to a taxpayer whose marginal tax rate does not change in the years subsequent to the year in which the loan is executed.

D) None of the choices are correct.

69) On April 1, year 1, Mary borrowed $200,000 to refinance the original mortgage on her principal residence. Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. How much can Mary deduct in year 1 for her points paid?

A) $200.

B) $150.

C) $4,500.

D) $6,000.

70) Which of the following statements regarding deductions for real property taxes is correct?

A) Real property taxes paid on an individual's personal residence are deductible as for AGI deduction.

B) Taxpayers may deduct as an itemized deduction up to $10,000 (unless married filing separately) all taxes combined (including state income taxes and real property taxes).

C) Taxpayers are not allowed to deduct real property taxes.

D) None of the choices are correct.

71) Which of the following statements regarding deductions for real property taxes is incorrect?

A) A taxpayer is allowed to immediately deduct property taxes as the taxpayer makes monthly mortgage payments to an escrow account held by her mortgage company.

B) Taxpayers are not allowed to deduct payments made for setting up water and sewer services.

C) An individual deducts real property taxes on her principal residence as a from AGI deduction.

D) Taxpayers are not allowed to deduct payments made for repairs to neighborhood sidewalks.

72) Which of the following statements best describes the deductibility of real property taxes when a taxpayer sells real property during a year?

A) The owner of the property at the time the property taxes are due is responsible for paying all of the real property taxes on the property for the year. Consequently, this person is allowed to deduct all of the property taxes for the year.

B) Taxpayers are allowed to deduct the real property taxes they actually pay for the year.

C) Taxpayers are allowed to deduct the property taxes allocated to the portion of the year that they owned the property.

D) None of the choices are correct.

73) On July 1 of year 1, Elaine purchased a new home for $400,000. At the time of the purchase, it was estimated that the property tax bill on the home for the year would be $8,000 ($400,000 × 2%). On the settlement statement, Elaine was charged $4,000 for the year in property taxes and the seller was charged $4,000. On December 31, year 1, Elaine discovered that the real property taxes on the home for the year were actually $9,000. Elaine wrote a $9,000 check to the local government to pay the taxes for that calendar year. (Elaine was liable for the taxes because she owned the property when they became due.) What amount of real property taxes is Elaine allowed to deduct for year 1? (Assume not married filing separately.)

A) $0.

B) $4,000.

C) $4,500.

D) $5,000.

E) $9,000.

74) Which of the following statements regarding personal and/or rental use of a home is false?

A) A day for which a taxpayer rents a home to an unrelated party for less than the property's fair market value is considered to be a personal-use day.

B) A day for which a taxpayer rents a home to a relative for full fair market value is considered to be a rental use day (home is not the relative's principal residence).

C) A day for which an unrelated nonowner stays in the home under a vacation exchange arrangement is considered to be a personal-use day.

D) A day for which the home is available for rent but is not occupied does not count as a personal-use or a rental use day.

75) Kenneth lived in his home for the entire year except for when he rented his home (near a very nice ski resort) to a married couple for 14 days in December. The couple paid Kenneth $14,000 in rent for the two weeks. Kenneth incurred $1,000 in direct expenses relating to the home for the 14 days. Which of the following statements accurately describes the manner in which Kenneth should report his rental receipts and expenses for tax purposes?

A) Kenneth would include the rental receipts in gross income and deduct the rental expenses for AGI.

B) Kenneth would exclude the rental receipts from gross income and deduct the rental expenses for AGI.

C) Kenneth would include the rental receipts in gross income and would not deduct the rental expenses because he used the residence for personal purposes for most of the year.

D) Kenneth would exclude the rental receipts, and he would not deduct the rental expenses.

76) Katy owns a second home. During the year, she used the home for 20 personal-use days and 50 rental days. Katy allocates expenses associated with the home between rental use and personal use. Katy did not incur any expenses to obtain tenants. Which of the following statements is correct regarding the tax treatment of Katy's income and expenses from the home?

A) Katy includes the rental receipts in gross income and deducts the expenses allocated to the rental use of the home for AGI.

B) Katy deducts from AGI interest expense and property taxes associated with the home not allocated to the rental use of the home.

C) Assuming Katy's rental receipts exceed the interest expense and property taxes allocated to the rental use, Katy's deductible expenses for the year may not exceed the amount of her rental receipts (she may not report a loss from the rental property).

D) All of these choices are correct.

77) Which of the following statements regarding the IRS and/or Tax Court approaches to allocating home-related expenses between rental use and personal use is correct?

A) The Tax Court approach allocates more property tax and interest expense to rental use than does the IRS approach.

B) The Tax Court and the IRS approaches allocate the same amount of expenses, other than interest expense and property taxes, to rental use.

C) The IRS approach allocates interest expense and property taxes to rental use based on the ratio of the number of days of rental use to the total days of the year.

D) None of the choices are correct.

78) Brady owns a second home that he rents to others. During the year, he used the second home for 50 days for personal use and for 100 days for rental use. Brady collected $20,000 of rental receipts during the year. Brady allocated $7,000 of interest expense and property taxes, $10,000 of other expenses, and $4,000 of depreciation expense to the rental use. What is Brady's net income from the property and what type and amount of expenses will he carry forward to next year, if any?

A) $0 net income. $1,000 depreciation expense carried forward to next year.

B) ($1,000) net loss. $0 expenses carried over to next year.

C) $0 net income. $1,000 of other expense carried over to next year.

D) $0 net income. $1,000 of interest expense and property taxes carried over to next year.

79) Braxton owns a second home that he rents to others. During the year, he used the second home for 50 days for personal use and for 100 days for rental use. After allocating the home-related expenses between personal use and rental use, which of the following statements regarding the sequence of deductibility of the expenses allocated to the rental use is correct (assume taxpayer has no expenses to obtain tenants)?

A) Depreciation expense, other expenses, property taxes and interest expense.

B) Other expenses, depreciation expense, property taxes and interest expense.

C) Property taxes and interest expense, depreciation expense, other expenses.

D) Other expenses, property taxes and interest expense, depreciation expense.

E) None of the choices are correct.

80) Harriet owns a second home that she rents to others. During the year, she used the second home for 10 personal days and for 200 rental days. Which of the following statements regarding the manner in which she should account for her income and/or expenses associated with the home is false?

A) Harriet's deductible expenses are not limited to the amount of gross rental income from the property.

B) Harriet will be allowed to deduct all of the mortgage interest on the loan secured by the property.

C) Harriet is required to include all of the rental receipts in gross income.

D) Harriet is required to allocate all expenses associated with the home to rental use or personal use.

81) For a home to be considered a rental (nonresidence) property, a taxpayer must:

A) rent the property for 15 days or more during the year.

B) use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented.

C) use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented.

D) rent the property for 1 day or more during the year and use the property for personal purposes for no more than the greater of (a) 14 days or (b) 10 percent of the total days rented.

E) rent the property for 15 days or more during the year and use the property for personal purposes for no more than the lesser of (a) 14 days or (b) 10 percent of the total days rented.

82) When a taxpayer experiences a net loss from a nonresidence (rental property):

A) the taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources.

B) the loss is fully deductible against the taxpayer's ordinary income no matter the circumstances.

C) if the taxpayer is not an active participant in the rental, the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income.

D) if the taxpayer is not allowed to deduct the loss due to the passive activity loss limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

83) Harvey rents his second home. During the year, Harvey reported a net loss of $35,000 from the rental. If Harvey is an active participant in the rental and his AGI is $80,000, how much of the loss can he deduct against ordinary income for the year?

A) $35,000.

B) $25,000.

C) $5,000.

D) $0.

84) Ilene rents her second home for the entire year. During the year, Ilene reported a net loss of $15,000 from the rental. If Ilene is an active participant in the rental and her AGI is $140,000, how much of the loss can she deduct against ordinary income in the year?

A) $15,000.

B) $10,000.

C) $5,000.

D) $0.

85) Jamison is self-employed and he works out of an office in his home. After allocating the home-related expenses between the business office and the rest of the home, which of the following statements regarding the sequence of deductibility of the expenses allocated to the home office business use is correct? (Jamison does not use the simplified method for determining the home office expense deduction.)

A) Depreciation expense, other expenses, property taxes and interest expense.

B) Other expenses, depreciation expense, property taxes and interest expense.

C) Property taxes and interest expense, other expenses, depreciation expense.

D) Other expenses, property taxes and interest expense, depreciation expense.

E) None of the choices are correct.

86) Which of the following statements regarding limitations on the deductibility of home office expenses of employees is correct?

A) Deductible home office expenses of employees are not deductible.

B) Deductible home office expenses of employees are deductible as itemized deductions.

C) Deductible home office expenses of employees are for AGI deductions limited to gross income from the business.

D) Deductible home office expenses of employees are for AGI deductions not limited to gross income from the business.

87) Which of the following statements regarding limitations on the deductibility of home office expenses of self-employed taxpayers is correct? 

A) Deductible home office expenses are miscellaneous itemized deductions subject to the 2 percent of AGI floor.

B) Deductible home office expenses are deducted as itemized deductions.

C) Deductible home office expenses are for AGI deductions limited to gross income from the business minus non–home office–related expenses.

D) Deductible home office expenses are for AGI deductions and may be deducted without limitation.

88) Which of the following statements regarding the home office expense deduction is correct?

A) For all home offices that are at least 300 square feet, the maximum amount of home office expense allowed under the simplified method is the same.

B) Taxpayers may choose to use the actual expense method for determining home office expenses in one year and choose the simplified method in a different year.

C) Under the simplified method of computing home office expenses, a taxpayer is not allowed to deduct any depreciation associated with a home as a home office expense.

D) All of these choices are correct.

89) Alison Jacobs (single) purchased a home in Las Vegas, Nevada, for $400,000. She moved into the home on September 1, year 0. She lived in the home as her primary residence until July 1 of year 4, when she sold the home for $675,000. If Alison's tax rate on long-term capital gains is 15 percent, what amount of tax will Alison pay on the $275,000 gain?

90) Nelson Whiting (single) purchased a home in Denver, Colorado, for $300,000. He moved into the home on July 1 of year 1. He lived in the home as his primary residence until December 1, year 2, when he sold the home for $450,000. Nelson sold the home because he needed to move to change jobs and his new job was located several hundred miles away. What amount of gain must Nelson recognize on the home sale in year 2?

91) Andrew Whiting (single) purchased a home in Boise, Idaho, for $300,000. He moved into the home on July 1 of year 1. He lived in the home as his primary residence until November 1, year 2, when he sold the home for $470,000. Andrew sold the home because he was changing jobs and his new job was in a different state. What amount of gain must Andrew recognize on the home sale in year 2?

92) Darren (single) purchased a home on January 1, 2015, for $400,000. Darren lived in the home as his primary residence until January 1, 2017, when he began using the home as a vacation home. He used the home as a vacation home until January 1, 2018. (He used a different home as his primary residence from January 1, 2017, to January 1, 2018.) On January 1, 2018, Darren moved back into the home and used it as his primary residence until January 1, 2019, when he sold the home for $500,000. What amount of the $100,000 gain Darren realized on the sale must he recognize for tax purposes in 2019?

93) Heidi (single) purchased a home on January 1, 2009, for $400,000. She lived in the home as her primary residence until January 1, 2017, when she began using the home as a vacation home. She used the home as a vacation home until January 1, 2018. (She used a different home as her primary residence from January 1, 2017, to January 1, 2018.) On January 1, 2018, Heidi moved back into the home and used it as her primary residence until January 1, 2019, when she sold the home for $700,000. What amount of the $300,000 gain Heidi realized on the sale must she recognize for tax purposes in 2019?

94) Several years ago, Chara acquired a home that she vacationed in part of the time and she rented part of the time. During the current year Chara:

• Personally stayed in the home for 14 days,
• Rented it at full fair market value to her parents for eight days,
• Rented it to her sister for five days at half price,
• Rented it to her friend at a discounted rate for three days,
• Rented it to another friend at fair market value for six days,
• Rented the home to third parties for 42 days at the market rate,
• Did repair and maintenance work for three days to keep the home ready for renters, and
• Marketed the property and made it available for rent for 120 days during the year even though it was not rented during this time. 

How many days of personal use and how many days of rental use did Chara experience on the property during the year?

95) Lebron Taylor purchased a home on July 1, 2018, for $500,000. Lebron paid for the entire purchase price with cash. On January 1, 2019, Lebron needed additional cash for purposes unrelated to his home, so he took out a loan secured by the residence for $150,000. During 2019, he made interest-only payments of $4,500 on the loan. What amount of the $4,500 interest expense can Lebron deduct in 2019?

96) Leticia purchased a home on July 1, 2017, for $200,000. She paid $180,000 down and financed the remaining $20,000. On January 1, 2019, when the outstanding balance of her mortgage was $15,000 and her home was valued at $300,000, Leticia refinanced her home for $200,000. With the $200,000 loan, she paid off the remaining $15,000 balance of her original mortgage, she used $35,000 to substantially improve her home, and she used the remaining $150,000 for purposes unrelated to her home. During 2021, Leticia made interest-only payments of $15,000 on the loan. What amount of the $15,000 interest expense is Leticia allowed to deduct in year 2021?

97) Jasper is looking to purchase a new home for $250,000. He is paying $50,000 as a down payment on the home and financing the remaining $200,000 with a loan secured by the home. He has the option of (1) paying no discount points on the loan and paying interest at 6.5 percent or (2) paying one discount point on the loan and paying interest of 5.5 percent on the loan. Both options require Jasper to make interest-only payments for the first five years of the loan and to pay the loan principal over the 25 years after that (it is a 30-year loan). Jasper itemizes deductions irrespective of any interest expense he may pay. Jasper's marginal ordinary income tax rate is 32 percent. What is Jasper's break-even point in years? (For simplicity, ignore time value of money concerns.)

98) Amelia is looking to refinance her home loan of $200,000. She has the option of (1) paying no discount points on the loan and paying interest at 7 percent or (2) paying 2 discount points on the loan and paying interest of 6 percent on the loan. Both options require Amelia to make interest-only payments for the first five years of the loan and pay back the loan over the 25 years after that (it is a 30-year loan). Amelia itemizes deductions irrespective of any interest expense she may pay. Amelia's marginal ordinary income tax rate is 32 percent. What is Amelia's break-even point in years? (For simplicity, ignore time value of money concerns.)

99) Jason and Alicia Johnston purchased a home in Austin, Texas, for $500,000. They moved into the home on September 1, year 0. They lived in the home as their primary residence until July 1 of year 5, when they sold the home for $800,000. What amount of the $300,000 gain are they allowed to exclude? (Assume married filing jointly.)

100) Joshua and Mary Sullivan purchased a new home on October 1 of year 1 for $400,000. At the time of the purchase, it was estimated that the real property tax rate for the year would be 1 percent of the property's value. Because the taxing jurisdiction collects taxes on a July 1 year-end, it was estimated that the Sullivans would be required to pay $3,000 in property taxes for the property tax year relating to October through June of year 2 ($400,000 × 1% × 9/12). The seller would be required to pay the $1,000 for July through September of year 1. Along with their monthly payment of principal and interest, the Sullivans paid $333 a month to the mortgage company to cover the property taxes. The mortgage company placed the money in escrow and used the escrow funds to pay the $3,000 property tax bill in July of year 2. The Sullivans' itemized deductions exceed the standard deduction before considering property taxes. What amount are the Sullivans allowed to deduct for property taxes relating to the property in year 1 (ending July 1, year 1) and year 2 (ending July 1, year 2)?

101) Kristen rented out her home for 10 days during the year for $5,000. She used the home for personal purposes for the other 355 days. She allocated the following home expenses to the rental use of the home:

Kristen's AGI is $120,000 before considering the effect of the rental activity. What is Kristen's AGI after considering the tax effect of the rental use of her home?

102) Careen owns a condominium near Newport Beach in California. This year, she incurs the following expenses in connection with her condo:

During the year, Careen rented the condo for 90 days, receiving $20,000 of gross income. She personally used the condo for 50 days. Assume Careen uses the IRS method of allocating expenses to rental use of the property. What is Careen's net rental income for the year?

103) Tyson owns a condominium near Laguna Beach, California. This year, he incurs the following expenses in connection with his condo:

During the year, Tyson rented the condo for 100 days, receiving $25,000 of gross income. He personally used the condo for 60 days. Assume Tyson uses the Tax Court method of allocating expenses to rental use of the property. What is Tyson's net rental income for the year (assume this is not a leap year)?

104) Rayleen owns a condominium near Orlando, Florida. This year, she incurs the following expenses in connection with her condo:

During the year, Rayleen rented the condo for 130 days and she received $25,000 of rental receipts. She did not use the condo at all for personal purposes during the year. Rayleen is considered to be an active participant in the property. Rayleen's AGI from all sources other than the rental property is $130,000. Rayleen does not have passive income from any other sources. What is Rayleen's AGI after accounting for the rental property?

105) Ashton owns a condominium near San Diego, California. This year, he incurs the following expenses in connection with his condo:

During the year, Ashton rented the condo for 120 days and he received $24,000 of rental receipts. He did not use the condo at all for personal purposes during the year. Ashton is considered to be an active participant in the property. Ashton's AGI from all sources other than the rental property is $120,000. Ashton does not have passive income from any other sources. What is Ashton's AGI?

106) Don owns a condominium near Orlando, California. This year, he incurs the following expenses in connection with his condo:

During the year, Don rented the condo for 70 days and he received $17,400 of rental receipts. He did not use the condo at all for personal purposes during the year. Don is considered to be an active participant in the property. Don's AGI from all sources other than the rental property is $140,000. Don does not have passive income from any other sources. What is Don's AGI?

107) Mercury is self-employed and she uses a room in her home as her principal place of business. She meets clients there and doesn't use the room for any other purpose. The size of her home office is 400 square feet. The size of her entire home is 2,400 square feet. During the year, Mercury received $6,300 of gross income from her business activities and she reported $2,500 of business expenses unrelated to her home office. For her entire home in the current year, she reported $3,500 of mortgage interest, $1,000 of property taxes, $600 of insurance, $500 of utilities and other operating expenses, and $3,200 of depreciation expense. What amount of home office expenses is Mercury allowed to deduct in the current year using the actual expense method? Indicate the amount and type of expenses she must carry over to the next year, if any. What amount of home office expenses is Mercury allowed to deduct in the current year using the simplified method?

108) Alfredo is self-employed and he uses a room in his home as his principal place of business. He meets clients there and doesn't use the room for any other purpose. The size of his home office is 600 square feet. The size of his entire home is 3,000 square feet. During the current year, Alfredo received $10,000 of gross income from his business activities, and he reports $7,500 of business expenses unrelated to his home office. For his entire home, he reported $10,000 of mortgage interest, $2,000 of property taxes, $2,500 of home operating expenses, and $4,500 of depreciation expense. What amount of home office expenses is Alfredo allowed to deduct in the current year? (Assume he uses the actual expense method of computing home office expenses.) Indicate the amount and type of expenses he must carry over to next year, if any.