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Chapter 14 Tax Consequences of Home Ownership

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Question;Chapter 14;Tax Consequences of Home Ownership;True / False Questions;1. In;general terms, the tax laws favor taxpayers who own a principal residence;relative to those who rent a principal residence.;True False;2. Renting a;residence may have nontax advantages over owning a home.;True False;3. A;personal residence is not a capital asset.;True False;4. A;taxpayer may be required to pay tax on a gain the taxpayer realizes when she;sells her principal residence.;True False;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 ten days.;True False;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 rental use.;True False;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.;True False;8. Taxpayers;meeting certain requirements may be allowed to exclude at least a portion of;gain realized on the sale of a principal residence.;True False;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.;True False;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.;True False;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.;True False;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.;True False;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.;True False;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.;True False;15. 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.;True False;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.;True False;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.;True False;18. The tax;laws place a fixed dollar limit on the amount of qualified residence interest a;taxpayer may deduct in a particular year.;True False;19. 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.;True False;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.;True False;21. 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.;True False;22. Taxpayers;with high AGI are not allowed to deduct interest on qualifying home equity;indebtedness.;True False;23. Depending;on AGI, taxpayers may be able to deduct mortgage insurance premiums as a for;AGI deduction.;True False;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.;True False;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.;True False;26. 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.;True False;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.;True False;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.;True False;29. 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.;True False;30. In certain;circumstances, a taxpayer could rent her personal residence at a profit and not;pay any tax on the income.;True False;31. 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 to the rental;use.;True False;32. When;allocating expenses of a vacation home between personal use and rental use, the;amount of depreciation expense allocated to the rental use is based on the;number of rental days over rental days plus personal use days.;True False;33. Expenses;of a vacation home allocated to rental use are deductible for AGI.;True False;34. In terms;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.;True False;35. Taxpayers;renting a home would generally report the rental income and expenses on;Schedule E.;True False;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.;True False;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.;True False;38. A tax loss;from a rental home is a passive activity loss.;True False;39. A;self-employed taxpayer reports home office expenses as for AGI deductions while;employees report home office expenses as from AGI deductions.;True False;40. 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.;True False;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).;True False;42. Taxpayers;using the simplified method for computing home office expenses do not deduct;depreciation expense for the home office use.;True False;Multiple Choice Questions;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;these;44. In order;to be eligible to exclude gain on the sale of a principal residence, the;taxpayer must meet which of the following tests?;A. Rental;test;B. Use test;C. Ownership;test;D. Business;use test;E. Two of;these;45. Which of;the following statements regarding a taxpayer's principal residence is true for;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;these statements is true.;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, 2014 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 2014 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 2015.;B. Stephen;will be eligible to exclude gain on home 2 only if he waits until 2019 to sell;it.;C. In;certain circumstances, Stephen may be able to exclude gain on home 2 even if he;sells home 2 in 2014.;D. None of;these is a true statement.;50. On;November 1, 2014, Jamie (who is single) purchased and moved into her principal;residence. In early 2015, Jamie was laid off from her job. On February 1, 2015;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 2015?;A. $0;B. $3,125;C. $31,250;D. $35,000;51. Cameron;(single) purchased and moved into his principal residence on July 1, 2014. On;June 1, 2015, Cameron lost his job. Because he couldn't afford the payments on;his new home, he sold it on July 1, 2015 in order to move into some apartments;across the street. On the sale of his principal residence, Cameron realized a;$50,000 gain. How much of the gain is Cameron allowed to exclude from his 2015;gross income?;A. $0;B. $2,500;C. $25,000;D. $50,000;52. Dawn;(single) purchased her home on July 1, 2005. On July 1, 2013 Dawn moved out of;the home. She rented out the home until July 1, 2014 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 2014;gross income?;A. $0;B. $207,000;C. $225,000;D. $230,000;53. Michael;(single) purchased his home on July 1, 2004. On July 1, 2012 he moved out of;the home. He rented out the home until July 1, 2013 when he moved back into the;home. On July 1, 2014 he sold the home and realized a $300,000 gain. What;amount of the gain is Michael allowed to exclude from his 2014 gross income?;A. $0;B. $225,000;C. $250,000;D. $300,000;54. Ethan;(single) purchased his home on July 1, 2005. On July 1, 2012 he moved out of;the home. He rented the home until July 1, 2014 when he moved back into the;home. On July 1, 2015 he sold the home and realized a $210,000 gain. What;amount of the gain is Ethan allowed to exclude from his 2015 gross income?;A. $0;B. $168,000;C. $200,000;D. $210,000;55. 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;56. 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;these statements is correct.;57. 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.;58. Which of;the following best describes a qualified residence for 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.;59. Which of;the following statements regarding interest expense on home-related debt 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. Taxpayers;may deduct interest expense on a limited amount of acquisition indebtedness and;a limited amount of home equity indebtedness.;D. None of;these statements is correct.;60. Patrick;purchased a home on January 1, 2014 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 2014 Patrick made interest-only payments on;the loan of $30,000. On July 1, 2014, when his home was worth $600,000 Patrick;borrowed an additional $75,000 secured by the home at an interest rate of 8;percent. During 2014, he made interest-only payments on this loan in the amount;of $3,000. What amount of the $33,000 interest expense Patrick paid during 2014;may he deduct as an itemized deduction?;A. $0;B. $3,000;C. $30,000;D. $33,000;61. Patricia;purchased a home on January 1, 2014 for $1,200,000 by making a down payment of;$100,000 and financing the remaining $1,100,000 with a 30-year loan, secured by;the residence, at 6 percent. During 2014, Patricia made interest-only payments;on the loan of $66,000. What amount of the $66,000 interest expense Patricia;paid during 2014 may she deduct as an itemized deduction?;A. $0;B. $6,000;C. $60,000;D. $66,000;62. Lauren;purchased a home on January 1, 2014 for $500,000 by making a down payment of;$200,000 and financing the remaining $300,000 with a 30-year loan, secured by;the residence. During 2014, Lauren made interest-only payments on the loan. On;July 1, 2014, when her home was valued at $500,000, she borrowed an additional;$150,000, secured by the residence. During 2014, she made interest-only;payments on the second loan. Which of the following statements regarding the;deductibility of the interest Lauren paid is correct (assume she uses the;chronological order of the loans to determine deductible interest expense if a;limitation applies)?;A. Lauren;may deduct all of the interest on the first loan but she may deduct only;two-thirds of the interest on the second loan unless she uses the loan proceeds;to substantially improve the home.;B. Lauren;may deduct all of the interest on the first loan but she may deduct only;two-thirds of the interest on the second loan no matter what she does with the;proceeds of the second loan.;C. Lauren;may deduct all of the interest on the first loan or all of the interest on the;second loan.;D. Lauren;may deduct all of the interest on the first loan and all of the interest on the;second loan no matter what she does with the loan proceeds.;63. Kimberly;purchased a home on January 1, 2013 for $500,000 by making a down payment of;$200,000 and financing the remaining $300,000 with a 30-year loan, secured by;the residence, at 6 percent. During 2013 and 2014 Kimberly made interest-only;payments on the loan in the amount of $18,000 each year. On July 1, 2013, when;her home was worth $500,000, Kimberly borrowed an additional $125,000 secured;by the home at an interest rate of 8 percent. During 2013, she made;interest-only payments on this loan in the amount of $5,000 and during 2014;she made interest only payments on the loan in the amount of $10,000. What is;the maximum amount of the $28,000 interest expense Kimberly paid during 2014;that she may deduct as an itemized deduction, if she used the proceeds of the;second loan to pay off student loans from law school?;A. $0;B. $5,000;C. $18,000;D. $26,000;E. $26,353;64. Jessica;purchased a home on January 1, 2013 for $500,000 by making a down payment of;$200,000 and financing the remaining $300,000 with a 30-year loan, secured by;the residence, at 6 percent. During 2013 and 2014, Jessica made interest-only;payments on the loan of $18,000 (each year). On July 1, 2013, 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 2013, she made interest-only payments on;this loan in the amount of $5,000. During 2014, she made interest only payments;in the amount of $10,000. What is the maximum amount of the $28,000 interest;expense Jessica paid during 2014 that she may deduct as an itemized deduction;if she used the proceeds of the second loan to finish the basement in her home;landscape the yard, and add a home theater room in the basement of the home?;A. $0;B. $10,000;C. $26,353;D. $26,000;E. $28,000;65. In 2012;Jaspreet purchased a new home for $500,000 by making a down payment of $400,000;and financing the remaining $100,000 with a loan, secured by the residence, at;6 percent. In 2014, Jaspreet made interest only payments of $6,000 on the;$100,000 loan. On January 1, 2014, when his home was valued at $500,000;Jaspreet executed two home equity loans (both secured by the home). The first;was for $80,000 at an interest rate of 9 percent. The second home equity loan;from a different bank was for $40,000 at an interest rate of 7 percent. In;2014, Jaspreet paid $7,200 of interest payments on the first home equity loan;and $2,800 interest expense on the second. Jaspreet used the proceeds from the;home-equity loans for purposes unrelated to the home. What is the maximum;amount of interest expense Jaspreet can deduct on these loans as home related;interest expense?;A. $6,000;B. $14,545;C. $14,600;D. $16,000;66. In 2012;Gabby purchased a new home 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. In 2014, Gabby made interest-only payments of $18,000 on the;$300,000 loan. On January 1, 2014, Gabby executed two home equity loans (both;secured by the home). The first was for $80,000 at an interest rate of 7;percent. The second home equity loan from a different bank was for $40,000 at;an interest rate of 9 percent. In 2014, Gabby paid $5,600 of interest payments;on the first home equity loan and $3,600 interest expense on the second. Gabby;used the loan proceeds for purposes unrelated to the home. What is the maximum;amount of interest expense Gabby can deduct on these loans as home related;interest expense?;A. $18,000;B. $25,400;C. $25,905;D. $27,200;67. In 2011;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, 2014, the outstanding balance on the loan was;$40,000. On January 1, 2014, 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 2014, 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 2014 on the new mortgage as;home related interest expense?;A. $0;B. $2,000;C. $5,000;D. $6,000;68. In 2011;Kris 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, 2014, the outstanding balance on the loan was;$40,000. On January 1, 2014, when his home was worth $300,000, Kris refinanced;the home by taking out a $150,000 mortgage at 5 percent. With the loan;proceeds, he paid off the $40,000 balance of the existing mortgage and used the;remainder for purposes unrelated to the home. During 2014, he made interest;only payments on the new loan of $7,500. What amount of the $7,500 interest;expense on the new loan can Kris deduct in 2014 on the new mortgage as home;related interest expense?;A. $2,000;B. $5,000;C. $7,000;D. $7,500;69. Which of;the following statements regarding qualified home equity indebtedness is;correct?;A. The limit;on qualified home equity indebtedness depends on filing status.;B. Limits on;qualified home equity indebtedness and qualified acquisition indebtedness do;not apply to the same loan.;C. If the;value of a home drops, the amount of qualified home equity indebtedness on an;existing home equity loan also drops.;D. In order;to deduct interest on home equity indebtedness, taxpayers must use the proceeds;of a home equity loan to improve the home.;70. Amanda;purchased a home for $1,000,000 in 2003 She paid $200,000 cash and borrowed the;remaining $800,000. This is Amanda's only residence. Assume that in 2014 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. What is her total amount of qualifying;home-related debt for tax purposes?;A. $600,000;B. $700,000;C. $1,000,000;D. $1,100,000;71. On March;31, 2014, 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 2014 deduction for her points paid?;A. $50;B. $150;C. $4,500;D. $6,000;72. 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;these statements is correct.;73. 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;these statements is correct.;74. On March;31, 2014, 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 2014 for her points paid?;A. $200;B. $150;C. $4,500;D. $6,000;75. Which of;the following statements regarding deductions for real property taxes is;incorrect?;A. A;taxpayer is not allowed to 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 for AGI;deduction.;D. Taxpayers;are not allowed to deduct payments made for neighborhood sidewalks.;76. 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;these statements is correct.;77. On July 1;of 2014, 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, 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 2014?;A. $0;B. $4,000;C. $4,500;D. $5,000;E. $9,000;78. Which of;the following statements regarding the first time home buyer credit is correct?;A. Taxpayers;who acquired a home in 2008 and claimed the credit is not required to pay the;credit back.;B. Taxpayers;who acquired a home in 2008 and claimed the credit are required to pay the;credit back over a 15-year period.;C. Taxpayers;who acquired a home in 2008 and claimed the credit are required to pay it back;over a 15-year period.;D. None of;these;79. 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.;C. A day for;which an unrelated non-owner 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.;80. 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;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.;81. Katy owns;a second home. During 2014, 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 2014 may not exceed the;amount of her rental receipts (she may not report a loss from the rental;property).;D. All of;these statements are correct.;82. 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;these statements is correct.;83. 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.;84. 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;these statements is correct.;85. H

 

Paper#38063 | Written in 18-Jul-2015

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