Chapter 8— Single-Family Dwellings and Condominiums
Selected end of chapter solutions and/or directions to answers:
1. Property taxes, mortgage interest and catastrophic losses are tax deductible for the
taxpayer, subject to the limits of the AMT.
2. $250,000 and $500,000, for the single and married taxpayer filing jointly, are the
respective exclusions from capital gains taxation for the homeowner selling the home in
which she has lived for at least two of the last five years (unless the home was acquired
adjacent to a 1031 exchange, in which case the ownership must be at least five years).
8. The Capital Gain on a Residence is equal to the net selling price minus the purchase price
minus any capital improvements made on the residence during the period of ownership. The
net selling price, in turn, is the gross sales price minus the costs of sale such as commissions
and fees.
9. To get the CG tax exclusion, the homeowner must have lived in the primary residence for
at least two of the last five years. If the home was acquired as part of a 1031, the minimum
ownership period is at least five years, whereas absent the 1031 a homeowner needs merely
to have lived there and owned it for at least two years.
10. $250,000/$500,000
11. Mortgage interest deductions are limited to the interest on a $1million acquisition
mortgage or a total of $1,100,000 for the acquisition costs plus capital improvements on a
residence. The limit total can be spread over a first and second home. A second home can
include a boat or RV as long as they have a bathroom. No mortgage interest deduction is
allowed beyond the costs of acquisition and improvements. For example, a homeowner
buying a home in the 1980’s for $200,000, doing $100,000 in additions is limited to an
interest deduction on $300,000 in financing, even if the home is eligible for a new loan of
$750,000 and is worth $1million.
Selected chapter 8 objective practice questions:
1.
Which of the following costs is not income tax deductible for a taxpayer’s
personal residence
A) interest on the mortgage loan for acquisition
(B) interest on a home improvement loan
(C) cost recovery deduction
(D) property taxes
2.
For a principal residence, the taxpayer’s basis of property value is determined by
the
(A) fair market value
(B) seller’s basis becomes the buyer’s basis
(C) appraised value a time of acquisition
(D) method of acquisition
3.
4.
5.
6.
7.
Interest on a mortgage loan used for acquisition of a personal residence is
deductible for a loan up to the following amount
(A) not in excess of the appraised value of the property
(B) $1,000,000 total for first and second homes
(C) $1,100,000 total for first and second homes
(D) $1,000,000 for each of two homes
All of the following are forms of income for income tax purposes EXCEPT
(A) active income
(B) capital gain income
(C) portfolio income
(D) depreciation income
If a house has a fair market value of $150,000 and acquisition debt of $90,000, how much
of a home equity loan would be eligible for a deduction of its interest cost?
(A) $50,000
(C) $90,000
(B) $60,000
(D) $100,000
If a personal residence is converted to rental property, allowable depreciation at
time of conversion is based on
(A) the market value
(B) the tax assessed value
(C) the lesser of the appraised value or the market value
(D) the lesser of the adjusted basis of value or the market value
Deductible expenses permitted for part time rental property are calculated by a
ratio between the number of days the property is rented and the
(A) total days used for both personal and rental use
(B) total days the property is available for rent during the tax year
(C) number of days in the tax year
(D) total working days in the tax year