1. Mortgage interest. Dimitri owns a house that he uses as his principal residence. He originally bought the house in 2016, taking out $900,000 loan. Since that time, he has made payments on the loan so that the outstanding balance was $800,000 throughout the current year. He paid $40,000 interest on this loan this year (i.e., at 5%). On January 1 of this year he took out an additional $100,000 loan, which he used to add a new bedroom to the house. The balance of that loan remained $100,000 throughout the year and he paid $3,000 interest on it (i.e., at 3%). What is the largest amount Dimitri can take as an itemized deduction for mortgage interest?

A. $0

B. $37,500 (i.e., $750,000 x 5%)

C. $43,000

D. $40,000

2. Depreciation. Yunqi is a professional violinist and is self-employed. She bought a Stradivarius violin in March of 2017 for $200,000. She used the violin in performances throughout the rest of 2017, all of 2018 and part of 2019. In September of 2019, she sold the violin for $230,000. Yunqi took depreciation deductions for the violin each year. Total depreciation at the time of the sale was $95,050. What is the amount and character of her income from the sale?

A. $125,050 capital gain

B. $95,050 ordinary income; $30,000 section 1231 gain

C. $125,050 ordinary income

D. $125,050 section 1231 gain

3. Sale of principal residence. Lupe and Gavin, who are married and file jointly, bought a house on January 1, 2012, for $450,000. They used it as a vacation home until January 1, 2016, when they moved into it and used it as their principal residence. (They did not take any depreciation deductions during the time it was a vacation home.) On January 1, 2020, they sold it for $880,000. How much capital gain do they have to report on this sale?

4. Mortgage interest. Casimir owns both a principal residence and a vacation home. He personally vacations at the vacation home for 100 days and rents it at fair rental value to strangers for 100 days. The rest of the year it is not used. He uses the IRS method to allocate expenses. The principal residence and the vacation home were both acquired in 2011, using in part mortgage debt. The mortgage on the principal residence was $200,000 throughout the year; Casimir paid $8,000 in interest on this mortgage. The mortgage on the vacation home was $390,000 throughout the year; Casimir paid $19,000 in interest on this mortgage. What is the largest amount Casimir can take as an itemized deduction for mortgage interest?

5. Business expenses. Alfonso runs a catering business. He used his car to commute to his office downtown on a daily basis and to drive between catering sites during the workday. He also used the car for personal activities. During 2020, he drove 200 miles commuting, 400 miles for work and 600 miles for personal activities. He kept detailed documentation of all of his mileage. He decided to use the per-mile rate (57.5 cents) for business expense purposes rather than deducting actual costs of operating the car. How much could Alfonso deduct on Schedule C of his tax return?

A. $345

B. $230

C. $0

D. $690