Chapter 15 Flashcards
The _______________ rules allow mortgaged homeowners to deduct from their adjusted gross income (AGI) the interest accrued and paid on first and second homes.
a. Real Estate Settlement Procedures Act (RESPA)
b. mortgage interest deduction (MID)
c. Truth-in-Lending Act (TILA)
d. All of the above.
B
To qualify home improvement loans for interest deductions, the new improvements need to:
a. add to the property’s market value.
b. prolong the property’s useful life.
c. adapt the property to residential use.
d. Any of the above.
D
To qualify for the mortgage interest deduction (MID), a mortgage needs to be secured by the owner’s:
a. principal residence.
b. second home.
c. place of business.
d. Either a or b.
D
Interest deductions on home mortgages are only allowed for interest which has accrued and been paid, called:
a. itemized deduction.
b. qualified interest.
c. adjusted gross income.
d. business expense.
B
All profit taken on a sale is reported in the year of the sale, unless the profit is:
a. excluded, exempt or deferred.
b. exempt, equitable or unrecaptured.
c. deferred, depreciated or assumed.
d. excluded, recaptured or recognized.
A
When the amount of the mortgage debt assumed or refinanced by the buyer exceeds the seller’s remaining cost basis, the amount of the seller’s profit will be greater in amount than the seller’s net sales proceeds, a situation called:
a. mortgage over basis.
b. negative equity.
c. subordination.
d. None of the above.
A
The process by which a seller pledges their carryback note as collateral for a mortgage is called:
a. hypothecation.
b. reinvestment.
c. reverse assumption.
d. mortgage over basis.
A
Every debt that is the result of an extension of credit on a sale, such as a note carried back by a seller, has an Internal Revenue Service (IRS) _______________ of interest.
a. imputed rate
b. periodic payment schedule rate
c. return of capital rate
d. Applicable Federal Rate (AFR)
D
Applicable Federal Rate (AFR) reporting entails an allocation and conversion of principal to interest by the taxpayer, called:
a. imputing.
b. commingling.
c. hypothecation.
d. amortization.
A
For all carryback sales entered into in an amount no greater than the interest threshold, the minimum reportable interest rate is the lesser of ________ or the note’s Applicable Federal Rate (AFR).
a. 5%
b. 8%
c. 9%
d. 12%
C
