Chapter 14

Charlie and Lucy have a home in Louisville, Kentucky. During the week of the Kentucky Derby, Charlie and Lucy go on vacation and rent their home to a family who wants to attend the derby festivities and the races. Charlie and Lucy receive net rental income of $2,500 for the week. They spend about $500 to stock the bar and provide amenities for their tenants. Utilities, insurance, and interest expense for that week total $300. What is the amount of net rental income Charlie and Lucy will report from this transaction? Multiple choice question.

$0

Which of the following statements are correct regarding the deductibility of home mortgage interest?

- The loan must be secured by the residence. - A taxpayer can deduct interest on up to two qualified residences. - Interest on home-equity indebtedness is only deductible if it is used for home improvements.

Which of the following statements is INCORRECT regarding a residence with significant rental use?

Direct rental expenses are allocated between personal and rental use.

A dwelling unit is considered to be a residence if the taxpayer's number of personal use days in the home is more than the greater of __________ days or __________% of the days rented during the year.

14, 10

A taxpayer is NOT required to report rental income or deduct rental expenses on a residence that is only rented for __________ days or less, as long as the taxpayer lives in the home for at least __________ days.

14, 15

Bob purchased a second home which he rented for 180 days this year. Assuming Bob does not plan to rent it the rest of the year, he must live in the home for at least __________ days during the remainder of the year in order for it to qualify as a residence.

18

Daniel and Debra have a principal residence in Ohio, but they also own residences in South Carolina and Colorado. None of the homes are rental property. For 2021, their total real property tax bills total $9,800. On how many of these homes can Daniel and Debra deduct the real property taxes?

3

Which of the following statements is NOT correct regarding the deductibility of home mortgage interest?

A qualified residence must be the taxpayer's primary residence.

Which of the following statements are CORRECT when referring to a home that qualifies as a residence with significant rental use?

All direct rental expenses such as advertising are fully deductible. All rental income is included in gross income. The taxpayer rents the home for 15 days or more.

Denis and Debbie sold their principal residence for $240,000. They had paid $255,000 four years earlier. How will this transaction be treated for tax purposes?

The $15,000 loss is NOT deductible because it results from the sale of a personal use asset.

Daniel, a single taxpayer, was given a house by his parents several years ago. He has used the home as his principal residence since it was given to him. Daniel's basis in the home was only $65,000. Due to the expansion of the city, he was able to sell the house for $320,000. How will this transaction be treated for tax purposes?

The first $250,000 of the gain can be excluded and the remaining $5,000 gain will be treated as a long-term capital gain.

Drake purchased a second home this year. He lived in the home for 12 days and rented the home for 70 days. Which of the following statements is correct?

The home is NOT a residence. Drake did not use the residence for more than the greater of 14 days or 10% of rental days.

Which of the following statements is FALSE regarding the deductibility of home office expenses?

The taxpayer can claim a home office deduction if he uses a portion of the home to meet with clients over the phone or through email.

Which of the following statements is INCORRECT regarding the home office deduction when using the actual expense method?

Tier 1 expenses are deductible to the extent of the Schedule C net income before considering the home office deduction.

True or false: If a taxpayer stays in his rental property for even one day, the expenses must be allocated between rental and personal days.

True

In order to qualify for home office deductions, a taxpayer must use part of his home __________ and __________ as either a principal place of business or as a place to meet with clients in the normal course of business.

regularly, exclusively