Chen has purchased a vacant lot. He hopes that someday, once he meets his future bride and settles down, he will build a home and raise his family on the property. This year, Chen paid $800 of property taxes and $1,000 of interest on the loan he obtained to purchase the lot. Which one of the following statements istrue?

Question 2 options:

1)

The property is a personal-use property and, thus, none of the above expenditures can ever be deducted, even if the property is rented in the year.

2)

He could deduct all of the above expenditures if he were to rent the land to a farmer for the year for $2,000.

3)

He can deduct the $1,000 of interest but not the property taxes paid in this year on the basis that the land may generate a capital gain on the land some day.

4)

He can claim the principal residence exemption on any future sale of the land if he decides to sell the land without building a home.