Question

Which of the following does NOT qualify as a dwelling unit?

            

a.          House.

b.         Pontoon boat with neither kitchen nor restroom.

c.          Mobile home.

d.         Sailboat with kitchen and restroom.

10.        Joey bought his home in 2012 for $250,000, and used it as his principal residence until he sold it in 2018 for $140,000.  What recognized gain or loss does Joey include in his 2018 taxable income?

            

a.          $110,000 recognized loss.

b.         Neither gain nor loss.

c.          $110,000 recognized gain.

d.         $140,000 recognized gain.

11.        Fred and Ethel file a joint return for 2018. Fred bought his home in 2014 for $300,000 and has used it as his principal residence ever since.  Ethel moved into Fred’s home when they married in January, 2017.  Fred sold the home September 30, 2018 for $775,000.  What is the least recognized gain Fred and Ethel can report on their joint return for 2018?

a.          $0.

b.         $225,000.

c.          $475,000.

d.         $775,000.

12.        Mickey and Minnie file a joint return for 2018. Mickey bought his home in 2014 for $300,000 and has used it as his principal residence ever since.  Minnie moved into Mickey’s home when they married in January, 2016.  Mickey sold the home September 30, 2018 for $775,000.  What is the least recognized gain Mickey and Minnie can report on their joint return for 2018?

a.          $0.

b.         $225,000.

c.          $475,000.

d.         $775,000.

13.        Paul and Paula file a joint return for 2018.  During 2018, they paid $90,000 of interest on their home mortgage interest of $1,500,000. How much of the interest expense can they deduct on their 2018 return?

            

a.          They cannot deduct any mortgage interest.

b.         They can deduct $45,000 of the interest if they bought the home (and borrowed the mortgage) on January 1, 2018.

c.          They can deduct $30,000 of the interest if they bought the home (and borroded the mortgage) on January 1, 2014.

d.         They can deduct all $90,000 of the interest.

14.        Red bought his home on March 31, 2018.  On November 25, 2018, Red paid the entire $1,200 of real estate tax due on the home for 2018; the previous owner paid none of the real estate tax due for 2018. How much real estate tax can Red deduct for 2018?

            

a.          $0.

b.         $300.

c.          $900.

d.         $1,200.

15.        Lester owns home in Nome, Alaska.  During June, Lester rented his home out for 10 days to a television crew filming a segment of “Race for the Pole.”  Lester collected $20,000 of rent income for the 10 days, and used $16,000 of the proceeds to go on a 10-day vacation to Tahiti during filming.  What is Lester’s gross income from this arrangement?

            

a.          $0.

b.         $4,000.

c.          $16,000.

d.         $20,000.

Answer 1

Q.9	A dwelling unit or housing unit, is a structure or the part of a structure or the space that is used as a home, residence, or sleeping place by one person or more people who maintain a common household. So in given options following is not qualify as dwelling unit: Option B.Pontoon boat with neither kitchen nor restroom.
Q.10	To correctly arrive at net capital gain or loss, capital gains and losses are classified as long-term or short-term. Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. In given case as the residence unit is held for more than 1 year it is long-term capital asset. Sale of capital asset results in capital loss when purchased value of asset is more than sale value. So in given case, Joey should recognize option a.$110,000 as loss.
Q.11	Sale of capital asset results in Capital gain and assessee is liable to pay Capital gain tax accordingly. However, The Taxpayer Relief Act of 1997 permanently exempted from taxation capital gains on the sale of a personal residence amounting up to $500,000 for married couples filing jointly, and $250,000 for single individuals. This exemption only applies to residences taxpayers have occupied for at least two of the last five years. Taxpayers can only claim this exemption once every two years. In given Case, Fred lived in residential house for more than 2 years but Ethel occupied for less than 2 years. So only $.250,000 exemption is available. So lease recognized gain= 775,000-300000)-250,000= 225,000 So in given case answer is option b.$225,000
Q.12	Sale of capital asset results in Capital gain and assesse is liable to pay Capital gain tax accordinlgy. However, The Taxpayer Relief Act of 1997 permanently exempted from taxation capital gains on the sale of a personal residence amounting up to $500,000 for married couples filing jointly, and $250,000 for single individuals. This exemption only applies to residences taxpayers have occupied for at least two of the last five years. Taxpayers can only claim this exemption once every two years. In given case both Mickey and Minnie occupied the residence for lease two years. So total exemption is upto $.500,000. Accordingly whole Capital gain = (775,000-300000)=475000 is exempt. Answer is option a.$0
Q.13	The home mortgage interest deduction (HMID) allows homeowners who itemize their tax returns to deduct mortgage interest paid on up to $750,000 worth of principal, on either their first or second residence. The current $750,000 limitation was introduced as part of the Tax Cuts and Jobs Act (TCJA) and will revert to the old limitation of $1 million after 2025. So in given case Paul and Paula can deduct upto &45000 i.e Option b.They can deduct $45,000 of the interest if they bought the home (and borrowed the mortgage) on January 1, 2018.
Q.14	Property taxes are usually split between the seller and the buyer when real estate is bought and sold. The IRS provides specific guidance as to how to determine the amount of property taxes allocated to each. Real estate taxes are generally divided so that you and the seller each pay taxes for the part of the property tax year you owned the home. Your share of these taxes is deductible if you itemize your deductions. In given question, red bought the home on March 31st 2018. and paid entire tax $1200 for 12 months. So the deduction will be $.900 which is the share of Mr.Red.( $1200/12 months* 9months). So option c.$900
Q.15	When Assesse rented his dwelling house and received income the same should be reported as rental income. However,There's a special rule if a dwelling unit is used as a residence and rent it for fewer than 15 days. In this case, no need to report any of the rental income. So in given case as Lester rented home for only 10 days no need to report such income. option a.$0