Module 12

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Module 12
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2011-09-19 22:27:28
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Module 12
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  1. The psychological attachment to the home in many cases far outweighs the financial and tax wisdom in thinking of the home as an asset.

    a) True
    b) False
    a) True
  2. Mortgage-free homes are often worth keeping during retirement because no monthly rent or mortgage payment is due.

    a) True
    b) False
    b) False

    A mortgage-free house can still be a ficial drain that robs the retiree of income because the equity that can be gained from a home can be used to provide needed retirement income. In addition, the costs of cooling, heating, and maintaining a house with "too much" space can be prohibitive.
  3. A married couple who have owned and lived in their home for 2 or more years do not have to recognize up to $500,000 of gain on the sale of their home

    a) True
    b) False
    a) True
  4. Increases in the basis of a home include substantial improvements but do not include expenses for home maintenance and repairs.

    a) True
    b) False
    a) True
  5. Clients who own a home but live in a rented home most of the time can still claim the home they own as their main home.

    a) True
    b) False
    b) False

    The place where people spend most of their time is considered their main home whether or not they own it.
  6. For married taxpayers, both spouses have to meet the 2-year use requirement-otherwise the available exclusion is $250,000 rather than $500,000.

    a) True
    b) False
    a) True
  7. Taxpayers who reside in nursing homes because they are incapable of self-care can treat their stay in such institutions as "use" of their principal residence for up to 1 year of the 2-year use requirement.

    a) True
    b) False
    a) True
  8. If an individual sells a personal residence after just 1 year of ownership, he or she will be eligible for a reduced exclusion.

    a) True
    b) False
    b) False

    The general rule is that if an individual sells a personal residence before owning and using it as a residence for 2 years, the exclusion does not apply at all. The reduced exclusion rules apply only when the sale is for one of several qualifying reasons.
  9. An engaged couple who each own a home should wait until they are married before selling either home.

    a) True
    b) False
    b) False

    This engaged couple should consider selling both homes prior to their marriage so they do not have problems with the 2-year rule.
  10. If a retiree chooses an age-restricted housing community with an age-62 restriction, up to 20 percent of the residents can still be younger than age 62.

    a) True
    b) False
    b) False

    When a community has an age-62 restriction, all residents must be aged 62 or older. The age-55 restriction is more flexible.
  11. Services provided by a life-care community typically include 1-month stays at sister communities in warm climates.

    a) True
    b) False
    b) False

    Services at a life-care community include housekeeping, meal preparation, facili¬ties for crafts, tennis and golf, transportation to shopping, and other care but do not include time-sharing in other facilities.
  12. One key element of the life-lease contract is the guarantee of space in a nursing home when it becomes necessary.

    a) True
    b) False
    a) True
  13. Assisted living facilities are another name for nursing homes.

    a) True
    b) False
    b) False

    Assisted living facilities emphasize independent living. They are not the same as nursing homes.
  14. Domicile for a client with two residences in different states is set by the state of original residence.

    a) True
    b) False
    b) False

    Domicile can be a choice. It is the intended permanent home of the client. It is determined by such factors as where the client is registered to vote and where he or she has a drivers license.
  15. Retirees who stay in their homes will probably want to make some changes to make the home safer and to minimize ongoing maintenance.

    a) True
    b) False
    a) True
  16. Homesharing with a companion is not legal in many states.

    a) True
    b) False
    b) False

    Homesharing with a companion is legal in all states.
  17. Reverse mortgages provide clients with the opportunity to live on the equity built up in their home without selling the home.

    a) True
    b) False
    a) True
  18. Clients are taxed on the income they receive under a reverse mortgage.

    a) True
    b) False
    b) False

    Clients are not taxed on the income they receive from the reverse mortgage because it is considered a loan.
  19. Reverse mortgages give larger loan payments in a low interest rate/high home value environment.

    a) True
    b) False
    a) True
  20. Clients must be over age 69 1/2 to be eligible for the Home Equity Conversion Mortgage (HECM) program.

    a) True
    b) False
    b) False

    The age of eligibility for this program is 62.
  21. Special-purpose loans are similar to home equity loans but are made by governmental agencies for limited purposes.

    a) True
    b) False
    a) True
  22. Under a sale-leaseback arrangement, special interest rates and rents can be given to family members.

    a) True
    b) False
    b) False

    Intrafamily sale-leaseback transactions should document that the transaction is an arm's-length one and that no special privileges were given; otherwise, the IRS will declare the transaction a sham.
  23. A qualified personal residence trust (QPRT) allows the homeowner to give away the house, thus removing its value from the estate while retaining the right to live in it for a specified period without paying rent.

    a) True
    b) False
    a) True
  24. A single taxpayer has basis in her home of $150,000. After living in the home for 10 years, she sells it for $305,000. How much income will she have to include for federal income tax purposes because of the sale?

    A) $305,000
    B) $150,000
    C) $0
    D) $155,000
    C) It is important for the client to sever all ties with the former state in order to change domicile to the new state.The participant is eligible for the exclusion of up to $250,000 in gain.

    Because the basis in the home is $150,000 and the sale price is $305,000, the gain is $155,000.

    The others are incorrect because the entire $155,000 in gain is excluded.
    (this multiple choice question has been scrambled)
  25. Which of the following statements concerning housing issues that face the retiree is correct?

    A) Downsizing is one way to unlock retirement capital from the home.
    B) It is always a good idea to stay in a mortgage-free home.
    C) Tax issues are generally the most determinative considerations in the sale of a personal residence.
    D) Selling a personal residence that has appreciated will generally result in taxable income.
    A) Downsizing is one way to unlock retirement capital from the home.

    Even a mortgage-free home can be a drain on a retiree’s limited financial resources.

    The emotional issues are generally the most compelling concerns.

    Under Sec. 121, most taxpayers selling a home can exclude up to $250,000 (or $500,000 for married taxpayers filing jointly).
    (this multiple choice question has been scrambled)
  26. Which of the following statements concerning a typical individual reverse mortgage on an owner-occupied house is correct?

    A) The amount of the payments depends on factors such as the homeowner’s age and the interest rate being charged.
    B) The loan has to be repaid immediately if the value of the home drops below the principal amount of the loan.
    C) In exchange for the payments, a portion of the ownership is transferred to the lender.
    D) The homeowner is taxed on the portion of the payment that represents unrealized appreciation in the house since the original date of purchase.
    A) The amount of the payments depends on factors such as the homeowner’s age and the interest rate being charged.

    The lender has only a loan with the house pledged as security. If the loan is not repaid when the homeowner dies or moves, the lender can foreclose so that the debt will be repaid.

    The homeowner is not taxed on any portion of the reverse mortgage payments, which are considered a loan.

    The loan does not have to be paid back as long as the homeowner is alive and continues to occupy the home.
    (this multiple choice question has been scrambled)
  27. Which of the following statements concerning age-restricted housing is (are) correct?

    I. Under the Fair Housing Act, a housing community can limit residents to only those individuals who are older than age 75.

    II. Only apartment communities are permitted to have age restrictions.

    A) I only
    B) II only
    C) Both I and II
    D) Neither I nor II
    D) Neither I nor II

    I is incorrect because the only allowable age restriction is age 62 or age 55.

    II is incorrect because age-restricted housing communities can include virtually any type of housing.
    (this multiple choice question has been scrambled)
  28. Which of the following statements concerning the results of a sale-leaseback arrangement for an owner-occupied home is (are) correct?

    I. It allows the seller to take advantage of the exclusion of gain on the sale of a personal residence.

    II. The value of the house will be included in the seller’s estate as long as he or she occupies the house at the time of death.

    A) Both I and II
    B) I only
    C) II only
    D) Neither I nor II
    B) I only

    II is incorrect because the sale of the house removes it from the estate of the seller, who then becomes the lessee.
    (this multiple choice question has been scrambled)
  29. Which of the following statements concerning life-care communities is correct?

    A) Life-care communities are easy to compare because they all provide similar services.
    B) An individual in a life-care community will never need long-term care insurance.
    C) An individual with an extensive contract will generally have to pay an additional fee for each day of nursing care.
    D) Most life-care communities have a significant up-front fee as well as an ongoing monthly charge.
    D) Most life-care communities have a significant up-front fee as well as an ongoing monthly charge.

    Extensive-type contracts are the most comprehensive and generally include some level of living space, services, and lifetime health care.

    Life-care communities are difficult to compare due to the range of services they provide.

    Long-term care insurance may be appropriate but it needs to be coordinated with the type of nursing-care benefits provided by the life-care community.
    (this multiple choice question has been scrambled)
  30. All the following statements concerning the retiree’s decision to relocate out of state are correct EXCEPT

    A) It is important to find a replacement home in the new state that meets the needs of the senior.
    B) It is important to make the relocation decision carefully because the decision is not easily reversible.
    C) It is important to consider whether the new state has any tax breaks for seniors.
    D) It is important for the client to sever all ties with the former state in order to change domicile to the new state.
    D) It is important for the client to sever all ties with the former state in order to change domicile to the new state.

    Domicile is considered to the be the individual’s permanent home. Domicile in the new state can be established with out severing all ties to the old state as long as the facts support a change in the permanent residence to the new state.
    (this multiple choice question has been scrambled)
  31. Stan, a single taxpayer, purchased a new home. After three months, he sold the home because of a job transfer. Assuming his gain on the sale was $40,000, how much is Stan’s taxable gain, assuming he purchased a new home for $300,000?

    A) $40,000.
    B) $31,250.
    C) $5,000.
    D) $8,750.
    D) $8,750.

    Stan is eligible for a partial exclusion because he sold the home due to a job change.Partial exclusion is $31,250 = ($250,000 full exclusion for single individual x 3/ 24 number of months ofuse divided by number of months required use)Therefore, the taxable gain is $8,750 ($40,000 - $31,250 exclusion).
    (this multiple choice question has been scrambled)
  32. Which of the following statements is correct regarding age-restricted housing?

    A) A community can restrict residents to age 50 or older without violating the Fair Housing Act.
    B) A community that restricts residents to age 62 or older is permitted to have up to 10% of the residents younger than age 62.
    C) A community that restricts residents to age 55 or older is permitted to have up to 20% of the residents younger than age 55.
    D) Age restricted housing options are relatively narrow, and should not be chosen if the resident requires special services.
    C) A community that restricts residents to age 55 or older is permitted to have up to 20% of the residents younger than age 55.

    A community that restricts residents to age 62 or older must have all residents age 62 or older.

    Under the Fair Housing Act, age-restricted housing can restrict residents to (a) those age62 or older or (b) those age 55 or older, with some individuals under age 55.

    Age restricted housing options are wide-ranging, and can include special services.
    (this multiple choice question has been scrambled)
  33. 221. All of the following statements are correct regarding life-care communities EXCEPT:

    A) The majority of life-care communities are operated as nonprofit organizations.
    B) Life-care communities are a combination of nursing homes and retirement villages.
    C) Life-care communities, like age-restricted housing, offer recreational and social activities.
    D) Typically, only wealthy individuals are able to reside in life-care communities due to the wide variety of services offered.
    D) Typically, only wealthy individuals are able to reside in life-care communities due to the wide variety of services offered.

    Life-care communities vary substantially in price, and even those who are not wealthy can utilize thesecommunities.
    (this multiple choice question has been scrambled)
  34. Which of the following statements is/are correct regarding the life-care community contract?

    I. Clients may be required to pay a nonrefundable up-front fee, based on the quality of the community.

    II. The resident will be guaranteed some level of services, living space, and lifetime health care.

    A) Neither I nor II.
    B) Only II.
    C) Only I.
    D) Both I and II.
    D) Both I and II.
    (this multiple choice question has been scrambled)
  35. Babs entered into a life-care contract. Under the terms of the contract, Babs will pay in advance for unlimited nursing home care, and there will be no increase in her monthly payments.

    Which type of life-care contract has Babs entered into?

    A) Paid-up contract.
    B) Fee-for-service contract.
    C) Modified contract.
    D) Extensive contract.
    D) Extensive contract.

    An extensive contract features payment in advance for unlimited nursing home care.
    (this multiple choice question has been scrambled)
  36. All of the following are services that are typically provided at a life-care community EXCEPT:

    A) Skilled-nursing care.
    B) Limited stays in sister communities.
    C) Facilities for golf, tennis, and other forms of recreation.
    D) Meal preparation.
    B) Limited stays in sister communities.

    Time-sharing in other communities is not among the services provided.
    (this multiple choice question has been scrambled)
  37. Which of the following statements is/are correct regarding the tax ramifications of alternative housing options?

    I. Retirees can swap residences with each other, resulting in a tax-free like-kind exchange.

    II. Retirees who choose to move into their vacation home can sell their primary residence and potentially exclude the gain on sale from their gross income.

    A) Neither I nor II.
    B) Both I and II.
    C) Only I.
    D) Only II.
    D) Only II.

    I is incorrect. Personal residences will not qualify for like-kind exchange treatment. Note: the retiree still may qualify for the exclusion of gain on sale of a residence.
    (this multiple choice question has been scrambled)
  38. All of the following are factors that should be considered by a client in determining whether to “burn
    the mortgage” EXCEPT:

    A) The client’s asset allocation mix.
    B) The client’s ability to itemize deductions.
    C) The client’s risk tolerance profile.
    D) The client’s ability to qualify for Medicaid.
    D) The client’s ability to qualify for Medicaid.

    Ability to qualify for Medicaid is not a consideration in determining whether or not to pay off the mortgage.
    (this multiple choice question has been scrambled)
  39. Maryanne, age 67, is a widow who just entered into a reverse mortgage with Bank of Old York. Based on her life expectancy, the value of the home, and prevailing interest rates, her monthly
    payment received from the bank will be $2,500. Which of the following statements is correct regarding this arrangement?

    A) Maryanne will retain title to her home.
    B) The monthly amount received will be taxed as part interest income, and part return of capital.
    C) The reverse mortgage loan must be repaid if the market value of the home drops below the loan amount.
    D) If Maryanne decides to sell the home; any equity that exceeds the loan balance will belong to Bank of Old York.
    A) Maryanne will retain title to her home.

    Maryanne will retain title to her home under a reverse mortgage arrangement.

    If Maryanne decides to sell the home, any equity that exceeded the loan balance willbelong to Maryanne.

    Payments received under a reverse mortgage are not subject to income taxes.

    The loan only must be repaid if Maryanne moves, sells the house, or dies.
    (this multiple choice question has been scrambled)
  40. All of the following statements are correct regarding the Home Equity Conversion Mortgage (HECM) program EXCEPT:

    A) Any lender authorized to make HUD-insured loans can participate in the HECM program.
    B) The borrower can choose from various payment options, including a life income option.
    C) The income an owner can receive through the HECM program depends on the owner’s age, the interest rate, and the value of the residence.
    D) An individual must be age 50 or older to be eligible for a HECM.
    D) An individual must be age 50 or older to be eligible for a HECM.

    To participate in the HECM program, a homeowner must be age 62 or older.
    (this multiple choice question has been scrambled)
  41. Which of the following statements is correct regarding a sale-leaseback arrangement?

    A) The seller can take advantage of the exclusion of gain on the sale of a residence, while remaining in the residence.
    B) The agreement should be structured so the seller is responsible for paying property taxes and
    C) A sale-leaseback transaction is not permitted between close family members.
    D) The house will be included in the seller’s gross estate if he or she dies within three years of the transaction.
    insurance on the residence.
    A) The seller can take advantage of the exclusion of gain on the sale of a residence, while remaining in the residence.

    The house is excluded from the seller’s gross estate after the sale, regardless of when death occurs.

    Family members can enter into a sale-leaseback. However, the IRS may audit thistransaction.

    The buyer should be responsible for paying taxes and insurance.
    (this multiple choice question has been scrambled)
  42. Which of the following is/are reasons a reverse mortgage would be favored over a home-equity loan?

    I. A reverse mortgage generally has much lower fees than a home equity loan.

    II. Restrictions on upkeep of the house may apply to a home equity loan, but not to a reverse
    mortgage.

    A) Only II.
    B) Neither I nor II.
    C) Only I.
    D) Both I and II.
    B) Neither I nor II.

    I is incorrect. Reverse mortgages generally have much higher fees than home equity loans.II is incorrect. A reverse mortgage may apply restrictions on the upkeep of the home.
    (this multiple choice question has been scrambled)
  43. All of the following statements are correct regarding a qualified personal residence trust (QPRT) EXCEPT:

    A) The residence will revert to the homeowner at the end of the trust term.
    B) The homeowner will have a taxable gift of the remainder interest in the home.
    C) This device is a useful estate planning technique if the home is expected to appreciate in the future.
    D) The homeowner can live in the home for a specified period of time.
    A) The residence will revert to the homeowner at the end of the trust term.

    The residence will pass to the remainder beneficiary (usually the child) at the end of the trust term.
    (this multiple choice question has been scrambled)

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