Question 1

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.

Accepted Answer

Days when a home is available for rent but not actually rented out do not count either as personal days or rental days.

Question 2

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 3

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

Accepted Answer

A limitation is placed on the amount of acquisition indebtedness and home-equity indebtedness.

Question 4

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 home mortgage interest expense on a loan secured by the home.

Accepted Answer

According to IRS regulations, a homeowner must use their home as a personal residence for at least 15 days and rent it out for no more than 14 days during the tax year in order to qualify for the mortgage interest deduction. If the home is not used for personal purposes for at least 15 days, the homeowner cannot deduct any home mortgage interest expense on a loan secured by the home, even if they rent it out for only one day.

Question 5

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

Accepted Answer

Renting a residence eliminates the responsibility of property maintenance and repairs, property taxes, and potentially costly mortgage payments. It allows flexibility for those who may need to move frequently or do not want to be tied down to a specific location. However, it does not provide the tax benefits of owning a home such as mortgage interest and property tax deductions.

Question 6

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 7

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

Accepted Answer

This is because homeowners are eligible for deductions such as mortgage interest and property taxes, whereas renters cannot claim these deductions on their taxes.

Question 8

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

If the failure to meet the ownership and use tests is due to certain unforeseen circumstances, such as a change in employment or health, the taxpayer may still be eligible for the exclusion. This is known as the "unforeseen circumstances exception" and has specific criteria that must be met.

Question 9

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

Accepted Answer

This is true as per the IRS rules. Taxpayers may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) on the sale of their principal residence if they meet certain ownership and use requirements.

Question 10

Jacoby purchased a home in 2016 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 2016, 2017, and 2018. In 2018, Jacoby can deduct interest expense on $1,100,000 of the loan principal.

Accepted Answer

The maximum amount of debt on which a taxpayer may deduct home mortgage interest is limited to $1,000,000 of acquisition indebtedness for debt incurred before 12/15/2017.

Question 11

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 IRS allows periods of ownership and use to be non-continuous and may overlap to determine eligibility for exclusion of gain on the sale of a principal residence. As long as the taxpayer has owned and used the property as their primary residence for a total of at least two out of the previous five years before the sale, they may qualify for the exclusion.

Question 12

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.

Accepted Answer

Days when a home is available for rent but not actually rented out do not count either as personal days or rental days.

Question 13

A personal residence is not a capital asset.

Accepted Answer

A personal residence is generally considered a capital asset, and any gain or loss from the sale of the residence is subject to capital gains taxes. However, there are some exceptions and special rules that apply to personal residences.

Question 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.

Accepted Answer

According to the IRS, a taxpayer can still qualify for the home sale exclusion if they meet certain ownership and use requirements. One of these requirements is that the taxpayer must have owned and used the home as their main residence for at least two out of the five years prior to the sale. Renting the home out does not disqualify the taxpayer as long as they meet these ownership and use requirements.

Question 15

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

One spouse must meet the ownership test and both must meet the use test.

Question 16

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

Accepted Answer

According to the IRS, generally, if you sell your main home at a gain, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases). However, if you do not meet the ownership and use tests, you may have to include part of the gain from the sale of your home in your taxable income.

Question 17

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. A taxpayer can exclude gain on the sale of a principal residence every two years if they meet the ownership and use tests. There is no limit on the number of times a taxpayer can take advantage of this exclusion, as long as they meet the qualifications.

Question 18

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 taxpayer must have owned the property for two or more years.

Question 19

A taxpayer who otherwise meets the ownership and use tests may not be allowed to exclude all of her realized gain if the taxpayer has nonqualified use of the home before selling.

Accepted Answer

If the taxpayer has nonqualified use of the home before selling, then she may only be able to exclude a portion of the realized gain. The amount of gain that can be excluded is based on the amount of time the home was used as a primary residence versus the amount of time it was used for nonqualified purposes.

Question 20

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.

Accepted Answer

This is because the portion of the gain attributable to depreciation is treated as recaptured depreciation and is subject to a maximum tax rate of 25%.

Quiz 14: Tax Consequences of Home Ownership