Questions - Chapter 18 Flashcards
Which of the following is a tax -deductible expense resulting from home ownership?
A. operating expenses
B. depreciation
C. mortgage interest
D. energy usage
18-1 C
Discount points paid by a borrower to obtain a conventional mortgage loan to purchase a principal residence:
A. do not increase the yield on the mortgage.
B. are not deductible by the borrower as interest.
C. are not deductible at all.
D. are deductible in the year paid.
18-2 D
With regard to a real estate commission paid by a seller, which of the following is NOT correct?
A. The commission can be deducted from the selling price as a selling expense in calculating the amount realized in the sale of a principal residence.
B. The commission paid can be deducted as a moving expense by the seller when itemizing tax-deductible expenses.
C. The commission is not deductible under any circumstance.
D. The commission deducted as a moving expense is subject to a cap.
18-3 C
- Selling price of home: $150,000
- Selling expenses of home: $10,000
- Basis of home: $80,000
- Closing costs of home when it was purchased: $5,000
- Improvements to home: $20,000
Adjusted basis of old home is:
A. $75,000.
B. $85,000.
C. $100,000.
D. $105,000.
18-4 D
- Selling price of home: $150,000
- Selling expenses of home: $10,000
- Basis of home: $80,000
- Closing costs of home when it was purchased: $5,000
- Improvements to home: $20,000
Gain realized from old home is:
A. $35,000.
B. $40,000.
C. $50,000.
D. $70,000.
18-5 A
All of the following are considered sales under the capital gain exemption provision EXCEPT:
A. exchange of a principal residence for another principal residence.
B. foreclosure or repossession of a principal residence.
C. destruction or condemnation of a principal residence.
D. sale of a remainder interest to a related party while reserving a life estate for the grantor.
18-6 D
All of the following are true of the capital gain exemption EXCEPT:
A. ownership and use period must be simultaneous.
B. a partial exclusion can sometimes be used if sale of residence results from a job transfer or health reasons.
C. a married couple can use the $500,000 joint exemption if only one of them owns the residence and both meet the occupancy requirement.
D. taxpayers who currently maintain an office in their home must pay capital gains tax on that part of the gain attributable to the office.
18-7 A
The sales price minus allowable expenses of sale is known as the:
A. adjusted basis.
B. amount realized.
C. capital gain.
D. net sales price.
18-8 B
For an interest on a debt to be considered “qualified residence interest” for tax deduction purposes, it can be all of the following EXCEPT:
A. acquisition debt from the purchase of a personal residence.
B. equity debt secured by the property to the extent that the sum of acquisition and equity debt does not exceed fair market value of the property.
C. interest generated by the first $100,000 of equity debt.
D. interest generated by the first $2,000,000 of acquisition debt.
18-9 D
Which of the following is NOT true about the capital gain exemption in the sale of a primary residence?
A. A married couple meeting the ownership, residency, and time requirements can exclude up to a $500,000 gain on a joint tax return.
B. A single individual meeting the ownership, residency, and time requirements can exclude up to a $250,000 gain on his individual tax return.
C. A husband and/or wife can use the exclusion only once in a lifetime; use by either husband or wife eliminates future exemptions.
D. A partial exclusion can sometimes be used if early sale of the residence is the result of a job transfer or is for health reasons.
18-10 C
When preparing an annual income tax return, a homeowner may be able to deduct all of the following regarding owner-occupied property, EXCEPT \: A. real estate taxes B. mortgage interest on a first loan C. mortgage interest on a second loan D. the cost of repairs to the home
T18-1 D
On an owner occupied home the only tax deductions that a homeowner may make are for mortgage interest and real estate taxes. There are no deductions for repairs, improvements or maintenance.
A single woman purchased a home in 2008 for $225,000 and occupied that home as her principal residence until she sold it. In 2009, she spent $40,000 to add a garage with a playroom above. In 2011, she paid $4,500 to repaint the exterior of the house. The woman sold her home for $290,000 in 2012. She paid $17,000 in commissions and settlement expenses. The woman is in the 28% tax bracket. If long-term capital gain is taxed at 15%, how much federal income tax will she owe for the sale of her principal residence?
A. none
B. $525
C. $1,200
D. $2,240
T18-2 A
None of the calculations are necessary. She is entitled to the owner-occupied capital gains exclusion.
Which of the following items related to their primary residence would a homeowner get to deduct from their annual income taxes?
A. insurance
B. maintenance
C. interest on their home loan
D. improvements
T18-3 C
On an owner occupied home the only deductions that a homeowner may make on their federal tax returns are mortgage interest and real estate taxes.
In order to be entitled to an owner-occupied capital gains exclusion related to a primary residence, which of the following statements is correct?
A. The owner must occupy the home two consecutive years out of the last five.
B. If the owner has occupied the home for two years at any time during ownership the exclusion. applies
C. The owner must occupy the home for two years out of the last five years prior to sale.
D. The amount of the exclusion is $500,000 per person.
T18-4 C
In order to be entitled to exclusion from capital gains tax on a primary residence, the owner must have occupied the home for two out of the last five years prior to sale. If the homeowner meets this requirement they are entitled to exclude up to a $250,000 gain if single and a $500,000 gain if married.
The amount of the capital gains exclusion for the sale of a principal residence is limited to:
A. a sales price of $250,000 per individual and $500,000 per married couple
B. a gain of $250,000 per individual and a $500,000 gain per married couple per lifetime
C. a gain of $250,000 per individual and a $500,000 gain per married couple per residence
D. an aggregate lifetime gain of $500,000
T18-5 C
The exclusion from capital gains tax is based on the gain, not the sales price and it can be applied to each residence, it is not a once per lifetime benefit.
