Principal Residence Exemption Quiz Questions
- 1.Serena is single. She purchased her principal residence three years ago. She lived in the home until she sold it at a $300,000 gain this year. Serena was allowed to exclude $250,000 of the $300,000 gain. What is the character of the $50,000 gain she was not able to exclude?
- A.
Ordinary income/gain
- B.
Short-term capital gain
- C.
Long-term capital gain
- D.
Personal gain
- 2.In order to be eligible to exclude gain on the sale of a principal residence, the taxpayer must meet which of the following tests?
- A.
Rental test
- B.
Use test
- C.
Ownership test
- D.
Business use test
- E.
Use test and ownership test
- 3.Which of the following statements regarding a taxpayer's principal residence is true for purposes of determining whether the taxpayer is eligible to exclude gain realized on the sale of the residence?
- A.
A taxpayer may have more than one principal residence at any one time.
- B.
A taxpayer's principal residence may not be a houseboat.
- C.
A taxpayer with more than one residence may annually elect which residence is considered to be the principal residence.
- D.
None
- 4.Which of the following statements regarding the exclusion of gain on the sale of a principal residence is correct?
- A.
A taxpayer may not exclude gain if the taxpayer is renting the residence at the time of the sale.
- B.
A taxpayer may simultaneously own two homes that are eligible for the home sale exclusion.
- C.
A taxpayer must be living in a residence at the time it is sold to qualify for the exclusion.
- D.
For a married couple to qualify for the $500,000 exclusion, both spouses must meet the ownership and use tests.
- 5.Larry owned and lived in a home for five years before marrying Darlene. Larry and Darlene lived in the home for one year before selling it at a $600,000 gain. Larry was the sole owner of the residence until it was sold. How much of the gain may Larry and Darlene exclude?
- A.
0
- B.
250,000
- C.
500,000
- D.
600,000
- 6.Shantel owned and lived in a home for five years before marrying Daron. Shantel and Daron lived in the home for two years before selling it at a $700,000 gain. Shantel was the sole owner of the residence until it was sold. How much of the gain may Shantel and Daron exclude?
- A.
0
- B.
250,000
- C.
500,000
- D.
700,000
- 7.On February 1, 2013 Stephen (who is single) sold his principal residence (home 1) at a $100,000 gain. He was able to exclude the entire gain on his 2013 tax return. Stephen purchased and moved into home 2 on the same day. Assuming Stephen lives in home 2 as his principal residence until he sells it, which of the following statements is true?
- A.
Under no circumstance will Stephen be allowed to exclude gain on home 2 if he sells home 2 in 2014.
- B.
Stephen will be eligible to exclude gain on home 2 only if he waits until 2018 to sell it.
- C.
In certain circumstances, Stephen may be able to exclude gain on home 2 even if he sells home 2 in 2013.
- D.
None
- 8.On November 1, 2013, Jamie (who is single) purchased and moved into her principal residence. In early 2014, Jamie was laid off from her job. On February 1, 2014, Jamie sold the home at a $35,000 gain. She sold the home because she found a new job in a different state. How much of the gain, if any, may Jamie exclude from her gross income in 2014?
- A.
0
- B.
3125
- C.
31,250
- D.
35,000
- 9.Cameron (single) purchased and moved into his principal residence on July 1, 2013. On June 1, 2014, Cameron lost his job. Because he couldn't afford the payments on his new home, he sold it on July 1, 2014 in order to move into some apartments across the street. On the sale of his principal residence, Cameron realized a $50,000 gain. How much of the gain is Cameron allowed to exclude from his 2014 gross income?
- A.
0
- B.
2500
- C.
25,000
- D.
50,000
- 10.Dawn (single) purchased her home on July 1, 2004. On July 1, 2012 Dawn moved out of the home. She rented out the home until July 1, 2013 when she sold the home and realized a $230,000 gain (assume none of the gain was attributable to depreciation). What amount of the gain is Dawn allowed to exclude from her 2013 gross income?
- A.
0
- B.
207,000
- C.
225,000
- D.
230,000
- 11.Michael (single) purchased his home on July 1, 2003. On July 1, 2011 he moved out of the home. He rented out the home until July 1, 2012 when he moved back into the home. On July 1, 2013 he sold the home and realized a $300,000 gain. What amount of the gain is Michael allowed to exclude from his 2013 gross income?
- A.
0
- B.
225,000
- C.
250,000
- D.
300,000
- 12.Ethan (single) purchased his home on July 1, 2004. On July 1, 2011 he moved out of the home. He rented the home until July 1, 2013 when he moved back into the home. On July 1, 2014 he sold the home and realized a $210,000 gain. What amount of the gain is Ethan allowed to exclude from his 2014 gross income?
- A.
0
- B.
168,000
- C.
200,000
- D.
210,000
- 13.What is the maximum amount of gain on the sale of principal residence a married couple may exclude from gross income?
- A.
0
- B.
25,000
- C.
250,000
- D.
500,000
- 14.Which of the following statements regarding home-related transactions is correct?
- A.
If a taxpayer converts a home from personal use to rental use, the basis of the rental property is the . greater of the basis of the property at the time of the conversion or the fair market value of the property at the time of the conversion.
- B.
If a taxpayer uses a residence as a rental property (and deducts depreciation expense against the basis of . the property) and as a personal residence the taxpayer will not be allowed to exclude the entire amount of gain even if the taxpayer otherwise meets the ownership and use tests and the amount of the gain is less than the limit on excludable gain.
- C.
If a taxpayer converts a rental home to a principal residence, the taxpayer's basis in the principal . residence is the greater of the basis of the home at the time of the conversion or the fair market value at the time of the conversion.
- D.
None
- 15.When a taxpayer rents a residence for part of the year, the residence is not eligible as a qualified residence for the home mortgage interest expense deduction unless the taxpayer's
- A.
Personal use of the home exceeds the taxpayer's rental use of the home.
- B.
Personal use of the home exceeds half of the taxpayer's rental use of the home.
- C.
Personal use of the home exceeds the lesser of 14 days or 10 percent of the taxpayer's rental use of the home.
- D.
Personal use of the home exceeds the greater of 14 days or 10 percent of the taxpayer's rental use of the home.
- 16.Which of the following best describes a qualified residence for purposes of determining a taxpayer's deductible home mortgage interest expense?
- A.
Only the taxpayer's principal residence.
- B.
The taxpayer's principal residence and two other residences (chosen by the taxpayer).
- C.
The taxpayer's principal residence and one other residence (chosen by the taxpayer).
- D.
Any two residences chosen by the taxpayer.
- 17.Which of the following statements regarding interest expense on home-related debt is correct?
- A.
Taxpayers may deduct interest expense on a limited amount of home equity indebtedness but they may . deduct interest expense on an unlimited amount of home acquisition indebtedness.
- B.
Taxpayers may deduct interest expense on a limited amount of acquisition indebtedness but an . unlimited amount of home equity indebtedness.
- C.
Taxpayers may deduct interest expense on a limited amount of acquisition indebtedness and a limited . amount of home equity indebtedness.
- D.
None
- 18.Patrick purchased a home on January 1, 2013 for $600,000 by making a down payment of $100,000 and financing the remaining $500,000 with a 30-year loan, secured by the residence, at 6 percent. During 2013 Patrick made interest-only payments on the loan of $30,000. On July 1, 2013, when his home was worth $600,000 Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent. During 2013, he made interest-only payments on this loan in the amount of $3,000. What amount of the $33,000 interest expense Patrick paid during 2013 may he deduct as an itemized deduction?
- A.
0
- B.
3000
- C.
30,000
- D.
33,000
- 19.Patricia purchased a home on January 1, 2013 for $1,200,000 by making a down payment of $100,000 and financing the remaining $1,100,000 with a 30-year loan, secured by the residence, at 6 percent. During 2013, Patricia made interest-only payments on the loan of $66,000. What amount of the $66,000 interest expense Patricia paid during 2013 may she deduct as an itemized deduction?
- A.
0
- B.
6000
- C.
60,000
- D.
66,000
- 20.Lauren purchased a home on January 1, 2013 for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a 30-year loan, secured by the residence. During 2013, Lauren made interest-only payments on the loan. On July 1, 2013, when her home was valued at $500,000, she borrowed an additional $150,000, secured by the residence. During 2013, she made interestonly payments on the second loan. Which of the following statements regarding the deductibility of the interest Lauren paid is correct (assume she uses the chronological order of the loans to determine deductible interest expense if a limitation applies)?
- A.
Lauren may deduct all of the interest on the first loan but she may deduct only two-thirds of the interest . on the second loan unless she uses the loan proceeds to substantially improve the home.
- B.
Lauren may deduct all of the interest on the first loan but she may deduct only two-thirds of the interest . on the second loan no matter what she does with the proceeds of the second loan.
- C.
Lauren may deduct all of the interest on the first loan or all of the interest on the second loan.
- D.
Lauren may deduct all of the interest on the first loan and all of the interest on the second loan no . matter what she does with the loan proceeds.
- 21.Kimberly purchased a home on January 1, 2012 for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a 30-year loan, secured by the residence, at 6 percent. During 2012 and 2013 Kimberly made interest-only payments on the loan in the amount of $18,000 each year. On July 1, 2012, when her home was worth $500,000, Kimberly borrowed an additional $125,000 secured by the home at an interest rate of 8 percent. During 2012, she made interest-only payments on this loan in the amount of $5,000 and during 2013, she made interest only payments on the loan in the amount of $10,000. What is the maximum amount of the $28,000 interest expense Kimberly paid during 2013 that she may deduct as an itemized deduction, if she used the proceeds of the second loan to pay off student loans from law school?0
- A.
0
- B.
5000
- C.
18,000
- D.
26,000
- E.
26,353
- 22.Jessica purchased a home on January 1, 2012 for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a 30-year loan, secured by the residence, at 6 percent. During 2012 and 2013, Jessica made interest-only payments on the loan of $18,000 (each year). On July 1, 2012, when her home was worth $500,000 Jessica borrowed an additional $125,000 secured by the home at an interest rate of 8 percent. During 2012, she made interest-only payments on this loan in the amount of $5,000. During 2013, she made interest only payments in the amount of $10,000. What is the maximum amount of the $28,000 interest expense Jessica paid during 2013 that she may deduct as an itemized deduction if she used the proceeds of the second loan to finish the basement in her home, landscape the yard, and add a home theater room in the basement of the home?
- A.
0
- B.
10,000
- C.
26,353
- D.
26,000
- E.
28,000
- 23.Two years ago, Jaspreet purchased a new home for $500,000 by making a down payment of $400,000 and financing the remaining $100,000 with a loan, secured by the residence, at 6 percent. In 2013, Jaspreet made interest only payments of $6,000 on the $100,000 loan. On January 1, 2013, when his home was valued at $500,000 Jaspreet executed two home equity loans (both secured by the home). The first was for $80,000 at an interest rate of 9 percent. The second home equity loan from a different bank was for $40,000 at an interest rate of 7 percent. In 2013, Jaspreet paid $7,200 of interest payments on the first home equity loan and $2,800 interest expense on the second. Jaspreet used the proceeds from the home-equity loans for purposes unrelated to the home. What is the maximum amount of interest expense Jaspreet can deduct on these loans as home related interest expense?
- A.
6000
- B.
14,545
- C.
14,600
- D.
16,000
- 24.Two years ago, Gabby purchased a new home for $500,000 by making a down payment of $200,000 and financing the remaining $300,000 with a loan, secured by the residence, at 6 percent. In 2013, Gabby made interest-only payments of $18,000 on the $300,000 loan. On January 1, 2013, Gabby executed two home equity loans (both secured by the home). The first was for $80,000 at an interest rate of 7 percent. The second home equity loan from a different bank was for $40,000 at an interest rate of 9 percent. In 2013, Gabby paid $5,600 of interest payments on the first home equity loan and $3,600 interest expense on the second. Gabby used the loan proceeds for purposes unrelated to the home. What is the maximum amount of interest expense Gabby can deduct on these loans as home related interest expense?
- A.
18,000
- B.
25,400
- C.
25,905
- D.
27,200
- 25.Three years ago, Abby purchased a new home for $200,000 by making a down payment of $150,000 and financing the remaining $50,000 with a loan, secured by the residence, at 6 percent. As of January 1, 2013, the outstanding balance on the loan was $40,000. On January 1, 2013, when her home was worth $300,000, Abby refinanced the home by taking out a $120,000 mortgage at 5 percent. With the loan proceeds, she paid off the $40,000 balance of the existing mortgage and used the remaining $80,000 for purposes unrelated to the home. During 2013, she made interest-only payments on the new loan of $6,000. What amount of the $6,000 interest expense on the new loan can Abby deduct in 2013 on the new mortgage as home related interest expense?
- A.
0
- B.
2000
- C.
5000
- D.
6000
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