Which of the following are exceptions that help taxpayers avoid the 10% early withdrawal penalty from an IRA? (Select all that apply) 1. Death 2. Attainment of age 55 and separation from service 3. Disability 4. Higher Education Expenses

1. Death 3. Disability 4. Higher Education Expenses

Exam #2 (CH. 7-12) Flashcards by Jason Jennings

Matthew and Mary are both aged 76. They give you the following information for the tax year. Sales tax: $4,000. Mortgage Interest: $7,000. Property Taxes: $8,000; Required Minimum Distribution (RMD) from their IRA’s: $20,000. Desired charitable contributions: $20,000. If they take the $20,000 required minimum distribution and also give $20,000 cash to charity, what are the tax consequences?

A. Their AGI will not change as a result of the required minimum distribution. They will get $37,000 itemized deductions.
B. Their AGI will increase by $20,000 of ordinary income. Their itemized deductions will be $37,000, for a net taxable income reduction of $17,000.
C. Their AGI will not change as a result of the required minimum distribution. They will get $39,000 itemized deductions.
D. Their AGI will increase by $20,000 of ordinary income. Their itemized deductions will be $39,000, for a net taxable income reduction of $19,000.

B. Their AGI will increase by $20,000 of ordinary income. Their itemized deductions will be $37,000, for a net taxable income reduction of $17,000.

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After discussing their tax situation with you, they decide to give their required minimum distribution directly to the charity, rather than taking the distribution and then giving money to the charity.

What are the tax consequences?

A. The required minimum distribution is included in gross income. Their itemized deductions will not include the charitable gift, so their total itemized deductions will be only $17,000. They will take the standard deduction.

Their standard deduction for 2023 will be: $30,700 ($27,700+$1,500+$1,500).

The net taxable income reduction of these two transaction will be $10,700 ($20,000 distribution included in gross income and $30,700 itemized deductions).

B. The required minimum distribution is not included in gross income. Their total itemized deductions will be $37,000.

The net taxable income reduction of these two transaction will be $37,000 ($0 distribution included in gross income and $37,000 itemized deductions).

C. The required minimum distribution is not included in gross income. Their itemized deductions will not include the charitable gift, so their total itemized deductions will be only $17,000. They will take the standard deduction.

Their standard deduction for 2025 will be: $33,200 ($30,000+$1,600+$1,600).

The net taxable income reduction of these two transactions will be $33,200 ($0 distribution included in gross income and $33,200 itemized deductions)

D. This is not the right answer.

Their standard deduction for 2025 will be: $33,200 ($30,000+$1,600+$1,600).

The net taxable income reduction of these two transactions will be $33,200 ($0 distribution included in gross income and $33,200 itemized deductions)

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Your MFJ clients have paid off their home, so they have no mortgage interest. Their property taxes each year are $13,000. They give $14,000 to charity. Their sales tax deduction is $3,000. They are healthy and under age 65. Assume their standard deduction is $30,000.

Over a 2-year period, how much will their itemized/standard deductions total if they do not cluster charitable contributions?

Over a 2-year period, how much will their itemized/standard deductions total if they DO cluster charitable contributions?

A. No clustering: $30,000; with clustering $60,000
B. No clustering: $30,000; with clustering $30,000
C. No clustering: $60,000; with clustering $60,000
D. No clustering: $60,000; with clustering $68,000

D. No clustering: $60,000; with clustering $68,000

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Your clients Mr. and Mrs. Saenz have had considerable medical expenses throughout the year. They bring you a list of the following medical expenses they have paid. Which ones can they include as a itemized medial expense for 2024?

Check all that apply.
1. Health insurance premiums
2. Health club dues
3. A handicap entrance to their home after Mr. Saenz lost a leg to diabetes. The doctor advised Mr. Saenz to travel in a wheelchair, rather than to get a prosthetic leg.
4. Travel expenses to doctors and hospitals
5. Medically prescribed marijuana
6. Mr. Saenz’s nursing home care after that loss of his leg
7. Over-the-counter drugs for relief of headaches, pain, and arthritis. These were not prescribed formally by the physician, but he suggested over-the-counter rather than prescription medication for certain pains.

Health insurance premiums
A handicap entrance to their home after Mr. Saenz lost a leg to diabetes. The doctor advised Mr. Saenz to travel in a wheelchair, rather than to get a prosthetic leg.
Travel expenses to doctors and hospitals
Mr. Saenz’s nursing home care after that loss of his leg

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Which client below can get a full QBI deduction?

A. Client B is married filing joint, with adjusted taxable income and qualified business income of $300,000
B. Client C is head of household, with adjusted taxable income and qualified business income of $200,000
C. Client D is single, with adjusted taxable income and qualified business income of $250,000
D. Client A is married filing joint, with adjusted taxable income and qualified business income of $500,000

A. Client B is married filing joint, with adjusted taxable income and qualified business income of $300,000

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Ashraf and Oday are married filing joint. Their adjusted taxable income is $250,000. Ashraf has qualified business income from an S-Corp of $300,000, which sells widgets. What is their QBI Deduction?

A. Zero
B. $50,000
C. $60,000
D. $80,000

B. $50,000

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Joaquin, a cash basis taxpayer, had an operation in December of 2023. He received the bill for the operation in March 2024. He paid the bill in February 2025. When can he take the medical expense as an itemized deduction?

A. 2023
B. In whichever of the 3 years is most beneficial to him
C. 2025
D. 2024

C. 2025

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Which of the following types of interest is generally deductible on Schedule A as an itemized deduction?

A. Credit card interest
B. Investment interest paid on a margin loan
C. Student loan interest
D. Interest paid on loans related to an active business

B. Investment interest paid on a margin loan

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Brenda and Richard are married filing jointly. Their taxable income is $375,000. They have the following potential itemized deductions:

Charitable contributions (cash to a public charity): $50,000
Sales tax: $6,000
Property taxes: $11,000
Investment interest: $3,000 (less than investment income, so all is deductible)
Mortgage interest on their remaining $500,000 of home acquisition indebtedness: $20,000

What will be their total itemized deductions shown on the tax return?

A. $90,000
B. $87,000
C. $84,000
D. $83,000

D. $83,000

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Which of the following is disallowed any QBI Deduction?

A. None of the above are allowed any QB Deduction
B. A partner in a financial advisor firm with taxable income of $500,000
C. An owner of an S-Corp that makes widgets with taxable income of $500,000
D. An engineer single-member LLC with taxable income of $500,000

B. A partner in a financial advisor firm with taxable income of $500,000

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Which of the following taxes is not eligible to be an itemized tax deduction on Schedule A?

A. Federal income tax
B. State sales tax
C. Property taxes
D. State income tax

A. Federal income tax

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Ishmael inherited $3,000,000 from an aunt during 2025. He was distraught about a serious earthquake in Ecuador where he has family. He donated $80,000 to the US Red Cross, which was helping the disaster victims. Ishmael’s income for 2025, other than the inheritance, is $70,000 of W-2 income and no above-the-line deductions. He is excited about how much the donation will save him in taxes. You tell him that he can deduct how much in 2025?

A. $42,000 and carry the remainder over to the following year
B. The entire $80,000
C. $50,000 and the remainder can be carried over to the following year
D. $42,000 and the remainder will not be deductible

A. $42,000 and carry the remainder over to the following year

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Justin comes to you for tax advice. He thinks he is eligible to itemize, but he is not sure it is worth the hassle to provide you with the information you would need to itemize his deductions on his tax return. He believes his itemized deductions would total $24,000 for 2025. He is age 65, legally blind, and single. He is in the 32% tax bracket.

What is his standard deduction for 2025? (Don’t forget the additional standard deduction amount, if he is eligible.)

A. $15,000
B. $18,500
C. $19,000
D. $20,000

C. $19,000

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Justin comes to you for tax advice. He thinks he is eligible to itemize, but he is not sure it is worth the hassle to provide you with the information you would need to itemize his deductions on his tax return. He believes his itemized deductions would total $24,000 for 2025. He is age 65 and legally blind and single. He is in the 32% tax bracket.

What is his tax benefit from itemizing for 2025?

A. Zero
B. $1,760
C. $5,000
D. $1,600

D. $1,600

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Which of the following terms was defined in an aside during the lecture?

A. Grok - to fully understand
B. Deductio - Latin for draining off or subtracting
C. Itemized - to state by items, give the particulars of
You Answered
D. Taxare - Latin for a censure or charge

A. Grok - to fully understand

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Mr. and Mrs. Coyne paid medical bills of $17,500 during the year. The AGI is $100,000. How much of the medical expenses will count toward their itemized deductions?

A. $7,500
B. Zero
C. $10,000
D. $19,000

C. $10,000

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You are going over Eddie’s portfolio at year-end for tax planning. XYZ stock was purchased for $100/share, but now it is selling for $0.50/share. Eddie wants to know if there isn’t some kind of tax break for a worthless security like this. You say:

A. Yes, we can take a loss on a worthless security such as this.
B. This stock certainly isn’t worth much at this point, but technically it is not worthless. We can’t write it off as a worthless security for tax purposes, but we can sell it and you can take a loss.
C. Unfortunately, there are no tax breaks for investors who lose money in the stock market.
D. We can’t write off the whole amount, but we can take a tax loss for the difference between the $100 cost basis and the $0.50 current value without selling them.

B. This stock certainly isn’t worth much at this point, but technically it is not worthless. We can’t write it off as a worthless security for tax purposes, but we can sell it and you can take a loss.

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Jessica bought 100 shares of XYZ stock on May 1, 2023 for $40,000. She sold it all on Nov 8, 2024 for $30,000. She then bought 100 more shares of XYZ on December 3, 2024 for $35,000. She sells this newest set of 100 shares of XYZ on February 14, 2025 for $50,000. What is her gain or loss on sale in 2025?

A. $15,000
B. $5,000
C. $10,000
D. Zero, she has violated the wash sale rules

B. $5,000

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Mr. and Mrs. Culver are very politically active. They have given $50,000 to political candidates this year, so they believe they will be able to itemize or otherwise get a deduction.

How do you advise them?

A. Political contributions are itemized deductions
B. They are partially deductible as itemized deductions, with any unused amount carried forward for 5 years
C. Political contributions are deductible above-the-line
D. Political contributions are not tax deductible

D. Political contributions are not tax deductible

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Which of the following are exceptions that help taxpayers avoid the 10% early withdrawal penalty from an IRA?
(Select all that apply)

Death
Attainment of age 55 and separation from service
Disability
Higher Education Expenses

Death
Disability
Higher Education Expenses

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Harvey hits that jackpot. His mother was a prolific painter, and she has gained some notoriety since her death. He sells one of her paintings at a gain of $20,000.

What do you advise him about the sale?

A. Gain on sale of personal assets is taxable
B. Personal gains and losses are not taxable/deductible; only business and investment gains and losses are
C. He should have a garage sale to generate personal losses, so they can be deducted and lower the income from the gain on the sale of the painting
D. You should criticize him for making a profit on his mother’s painting

A. Gain on sale of personal assets is taxable

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Karl and Wendy, MFJ, purchased $100,000 of Karl’s stock from ABC Co. as an initial investor in this small business start-up 3 years ago. At the time, ABC’s capitalization was $800,000. They have recently sold it at a gain of $50,000. What is the tax treatment of this gain?

A. The first $50,000 of long-term gain is not taxable due to the Section 1244 status of the stock
B. Section 1244 allows the taxpayer to take a tax deduction for purchases of Section 1244 stock
C. The first $100,000 of long-term gain is not taxable due to the Section 1244 status of the stock
D. The gain will be treated as long-term capital gain

D. The gain will be treated as long-term capital gain

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Lisa owns a second home. She uses the property 19 days out of the year. She rents the property out 14 days out of the year. The rest of the year it sits empty. Which of the following is true of the property?

A. The property counts as “Mixed Use”, all of the income is taxable, and part of the expenses will be deductible
B. The property counts as a “Vacation Home”, the income is non-taxable
C. The property counts as a “Rental”, the income is fully taxable, and all of the allowable expenses are deductible
D. The property counts as “Mixed Use”, a part of the income is taxable, and part of the expenses will be deductible

B. The property counts as a “Vacation Home”, the income is non-taxable

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Noah needs to take some capital losses this year for tax purposes, but, as his financial advisor, you do not want to substantially change his portfolio allocation. You see that he has a loss position in an actively managed international stock fund. If he sells this fund at a loss, which of the items below would be the best replacement for this fund that does not cause the sale to be disallowed per the wash sales rules?

A. Purchase of an international index stock fund
B. Purchase of shares in a Japanese sushi company
C. Purchase of a fund that tracks the Dow Jones Industrial Average
D. Purchase of a bond fund

A. Purchase of an international index stock fund

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Roald has started collecting stamps. He would like to classify this as a business so that he can deduct the cost of buying and storing the collection. Which of the following is TRUE regarding his ability to classify this as a business? A. The IRS doesn't care if something is a hobby, they allow deductions for any kind of expense. B. Roald is allowed to start the "Roald's Stamp Collection" business, and since businesses are allowed to deduct expenses, he can write off buying and storing the collection. C. Unless Roald can show a clear profit motive in his collection, or an actual profit for 3 of 5 years, what he has is a hobby and expenses are non-deductible. D. Roald is not allowed under any circumstance to claim this is a business, it's clearly just a hobby because stamp collecting is a known hobby.

C. Unless Roald can show a clear profit motive in his collection, or an actual profit for 3 of 5 years, what he has is a hobby and expenses are non-deductible.

The Flanders own a second home. They use the home 23 days out of the year. It is rented out 200 days out of the year. Which of the following is true about the taxation of the property? A. The home is classified as a "Rental," all of the income is taxable, and all allowable expenses are deductible B. The home is classified as "Mixed Use," all of the income is taxable, but only part of the expenses are deductible C. The home is classified as "Mixed Use," only a portion of the income is taxable and a portion of the expenses are deductible D. The home is classified as a "Vacation Home," so none of the income is taxable, and the expenses are not deductible other than possibly a portion of the mortgage interest

B. The home is classified as "Mixed Use," all of the income is taxable, but only part of the expenses are deductible

Which of the following is NOT a possible classification of home ownership for tax purposes? 1. Rental Property 2. Commercial Property 3. Personal Residence 4. Vacation Home 5. Mixed Use Property

2. Commercial Property

Todd owes Tanya $5,000 for completing his (very complicated) tax return, but refuses to pay and has become unreachable. Tanya's business, a pass-through LLC, uses cash-basis accounting. Which of the following is TRUE for Tanya? A. She can only write off the bad debt if she has attempted to collect for at least 3 years B. She cannot write off the bad debt since she never recognized the income C. She will have $5,000 of income and a matching $5,000 deductible business expense

B. She cannot write off the bad debt since she never recognized the income

Which of the following are exceptions that help taxpayers avoid the 10% early withdrawal penalty from qualified retirement plans? 1. First time home purchase (up to $10,000) 2. Death 3. Disability 4. Qualified Domestic Relation Order from a divorce

2. Death 3. Disability 4. Qualified Domestic Relation Order from a divorce

Jerry made a big mistake and bought a new car he couldn't really afford. He decided to sell it after 7 months at a loss to try to get out from under the debt burden. Which statement is true? He doesn't use it for business in any way. A. Jerry cannot deduct any of the loss B. Jerry can deduct the loss as short-term C. Jerry can deduct the loss as long-term D. Jerry can deduct the loss as an itemized deductio

A. Jerry cannot deduct any of the loss

Which of the following transactions will generate a non-deductible loss under the wash sale rules? A. Joseph sold his 100 shares of GM on October 18 for a loss and purchased 100 shares of GM on November 28. B. Jeanie bought a mutual fund on April 2 and sold it for a loss on April 22. C. Mark bought 300 shares of Target stock on June 1. He then bought 300 more shares of Target stock on October 31. He sold 300 shares of Target stock on November 3 at a loss. D. George bought 800 shares of CompuWare stock on March 1. He then bought 800 more shares of CompuWare stock on July 31. He sold 300 shares of CompuWare stock on September 12 at a loss.

C. Mark bought 300 shares of Target stock on June 1. He then bought 300 more shares of Target stock on October 31. He sold 300 shares of Target stock on November 3 at a loss.

Zea has two jobs in 2025. At one, she earns $80,000. At the other she earns $10,000. Will Zea have excess Social Security Withholding? A. No, because her combined earnings are under the Social Security wage base B. Yes, because she has two jobs C. No, because the two employers will coordinate their withholding and make sure it is not too much D. Yes, because she is over the Social Security wage base

A. No, because her combined earnings are under the Social Security wage base

Which of the following is true of the Saver's Credit? A. The credit is no longer available after the TCJA B. The credit is available if elective contributions are made to a qualified retirement plan or an IRA, regardless of if the contributions are pre or after-tax, as long as the taxpayer has an MAGI under the phase-out amount C. The credit is available only for taxpayers over the age of 50 to encourage making up for lost time saving for retirement D. The credit is available only if the tax benefit is forgone for the contribution since there is no double benefit allowed

B. The credit is available if elective contributions are made to a qualified retirement plan or an IRA, regardless of if the contributions are pre or after-tax, as long as the taxpayer has an MAGI under the phase-out amount

The Kelly's have paid a total of $15,000 this year for qualified child care expenses for 3 children, $5,000 each. Their AGI is $200,000. What will be the amount of the child and dependent care credit? A. Zero B. $6,000 C. $1,200 D. $12,000

C. $1,200

The Morgans have a 5 year old child who is their dependent. He goes to child care while both parents work. The Morgans have AGI of $350,000. What is the max amount of Child and Dependent Care Credit they can have? What is the max Child Tax Credit they can have? A. Child and Dependent Care Credit: $2,000 | Child Tax Credit: $600 B. Child and Dependent Care Credit: $3,000 | Child Tax Credit: $2,000 C. Child and Dependent Care Credit: $600 | Child Tax Credit: Zero D. Child and Dependent Care Credit: $600 | Child Tax Credit: $2,000

D. Child and Dependent Care Credit: $600 | Child Tax Credit: $2,000

Which of the following statements are true regarding Education Credits? Select all that apply. 1. To take either credit, the student must be enrolled in a program leading to a degree, certificate, or other educational credential 2. The two education credits are the American Opportunity Tax Credit and the Lifetime Learning Credit 3. Qualifying education expenses include athletic fees for both credits 4. A taxpayer with an MAGI of $200,000 will not be able to take either credit

2. The two education credits are the American Opportunity Tax Credit and the Lifetime Learning Credit 4. A taxpayer with an MAGI of $200,000 will not be able to take either credit

The Bacardi family has two children in college. Child A is a 5th year senior. Child B is a freshman. Qualified tuition and related expenses for A total $25,000. Qualified tuition and related expenses for B total $30,000. Their MAGI for education credit purposes is $128,000. They have taken the American Opportunity Credit for Child A each of the 4 college years in the past. They do not have any 529 or Coverdell accounts. What education credits do you recommend that the Bacardi family take for their children? A. Child A: LL Credit of $2,000 Child B: AOTC of $2,500 B. Child A: ATOC of $2,500 Child B: AOTC of $2,500 C. Child A: AOTC of $2,000 Child B: LL Credit of $2,000 D. Child A: LL Credit of $1,000 Child B: AOTC of $2,500

A. Child A: LL Credit of $2,000 Child B: AOTC of $2,500

Which statement is true regarding the child and dependent care credit? A. The amount of the credit is reduced, but not completely phased out, based on AGI B. There is no reduction of the child and dependent care credit based on AGI C. The child and dependent care credit is a refundable credit D. The amount of the credit is completely phased out for taxpayers with AGI in excess of $250,000

A. The amount of the credit is reduced, but not completely phased out, based on AGI

Which statement is true regarding deductions and credits? A. Both credits and deductions reduce taxable income B. A credit reduces taxable income, a deduction reduces the tax liability C. All deductions are taken above-the-line, all credits are taken below-the-line D. A deduction reduces taxable income, a credit reduces the tax liability

D. A deduction reduces taxable income, a credit reduces the tax liability

Which of the following is NOT a method of paying income taxes prior to the actual filing of the Form 1040? A. Withholding on forms W-2 and 1099 B. Estimated payments C. Putting money aside in a high-interest savings account labelled "For Taxes" D. Applying overpayment from the prior year

C. Putting money aside in a high-interest savings account labelled "For Taxes"

Total qualified tuition and fees for Harry are $50,000. Harry's scholarship paid for $30,000. $5,000 came from a Coverdell account. Harry borrowed the rest. How much of the tuition and fees is potentially eligible for any education credit? A. $45,000 B. $50,000 C. $15,000 D. $20,000

C. $15,000

Which of the following is FALSE about the Adoption Expense Credit? A. The Adoption Expense Credit is NEVER available for adoption of anyone age 18 or over B. The credit is available for expenses such as court costs, attorney fees, and travel expenses C. It is a non-refundable credit with a five year carryfoward D. The credit is phased-out for high income individuals

A. The Adoption Expense Credit is NEVER available for adoption of anyone age 18 or over

Which of the following is a fully refundable credit? A. Child and Dependent Care Credit B. Earned Income Credit C. Child Tax Credit D. Foreign Tax Credit

B. Earned Income Credit

EITC stands for: A. Earned Income Tax Credit B. Early Income Tax Filing Credit C. Earned Income Taxidermy Credit D. Every Iota of Tax is Crazy

A. Earned Income Tax Credit

What is the difference between a refundable and a nonrefundable credit? A. A nonrefundable credit can generate a refund, a refundable credit can only lower the tax liability to zero B. A refundable credit increases your deductions, while a nonrefundable credit allows you to carry a deduction forward to a future year C. The difference is only philosophical. On the tax return, it doesn't make any difference whether the credit is refundable or nonrefundable D. A refundable credit can generate a refund, a nonrefundable credit can only lower the tax liability to zero

D. A refundable credit can generate a refund, a nonrefundable credit can only lower the tax liability to zero

Which of the following is TRUE regarding education credits? A. A student with a felony conviction is unable to take advantage of either education credit B. Because the AOTC is a larger credit there's no reason to ever use the LLC C. The same student will never be able to use both the AOTC and LLC even in different years D. You cannot get an education credit for tuition paid for by a scholarship

D. You cannot get an education credit for tuition paid for by a scholarship

Your client, Andrew, placed a new rental real estate property into service last year, for which he paid $500,000, of which the land is valued at $87,500. What is the depreciation deduction for all but the first and last year of the life of the property? A. $10,577 B. It depends on how much as depreciated in year one C. $15,545 D. $15,000

D. $15,000

Classify the following assets as ordinary assets, capital assets, or Section 1231 assets. 1. Business inventories 2. A painting bought at auction 3. Debt owed to a creditor 4. Copy machines at Copy Center

1. Ordinary 2. Capital asset 3. This is not an asset 4. Section 1231

Five years ago, Frederick purchased 1,000 shares of Ickingham Industries, Inc. for $10 per share. He signed an agreement with the company which allowed the company to use his dividend payments to purchase additional shares for him. The dividends became the basis of the new stock purchased. Over the last 5 years, Frederick received a total of $1,200 in dividend payments, which purchased an additional 100 shares of stock. If Frederick sells all 1,100 of his shares for $24,000, what is his taxable gain? A. $12,800 B. $14,000 C. $24,000 D. $0

A. $12,800

Johanna purchased a rental home for $150,000. She added a driveway and garage to the home at a cost of $20,000. To date, she has taken $12,000 depreciation on the home. What is her adjusted basis? A. $150,000 B. $158,000 C. $138,000 D. $170,000

B. $158,000

Marvin runs a small financial planning firm with an office a few blocks from home. He placed $20,000 of new computers and office equipment into service in 2025. What is the maximum amount of Section 179 Expense he can take? A. $10,000 B. $15,000 C. $1,250,000 D. $20,000

D. $20,000

Rosa is an art dealer who maintains a studio in SoHo. Which of the following is NOT an Ordinary Income Asset for Rosa? A. Art she has collected at the studio B. "Art berets" that say I Love NY which she sells to tourists C. Art Rosa has created on her own D. None of the other answers

D. None of the other answers

Oliver has an antique vase he gifts to his beloved Dinah. He bought the vase many years ago for $2,000, it is now valued at $10,000. Oliver does not owe gift tax for the transfer. What is Dinah's cost basis in the vase? A. $10,000 B. $2,000 C. $8,000 D. Zero

B. $2,000

Yoko is an artist who also collects the art of others. Which of the following assets is NOT categorized as an Ordinary Income Asset for Yoko? A. Art created by others that she has acquired by trading her art and is part of her personal collection B. Her inventory of branded t-shirts she sells to fans through her website C. Art that she created with no intent to sell it D. Accounts receivable (payments being made on art she has sold)

A. Art created by others that she has acquired by trading her art and is part of her personal collection

Christopher purchased the Quarry City Industrial Building, a commercial, industrial and office building, as an investment. It is currently being leased out as office space to businesses, and Christopher intends to continue using the property in this manner. Which of the following statements concerning the depreciation deductions that can be taken on the property is correct? A. Christopher can depreciate the cost allocable to the building (but not the land) over a 27.5 year period B. Christopher can depreciate the cost allocable to the building (but not the land) over a 39 year period C. Christopher can depreciate the cost allocable to the building (but not the land) over a 20 year period D. Christopher cannot take depreciation deductions on realty, so neither the land nor the building are eligible for depreciation

B. Christopher can depreciate the cost allocable to the building (but not the land) over a 39 year period

Match the following definitions. 1. Half-year convention 2. Realty 3. Personalty 4. Personal assets

1. For personalty, the practice of assuming assets were placed in service at the mid-point of the year, so 1/2 year depreciation is taken the first year. 2. Real estate, such as buildings and land 3. Items that are not realty; 'movable' items such as computers, cars, and office furniture for the most part. 4. Assets that are personal-use, not business use. Examples are the personal car and home, which are not used for business purposes

George purchases a home in College Station which he plans to rent out to students. Can George take depreciation expenses on the home? If so, over how many years will it be depreciated? A. Yes, it is property held for the production of income - 39 years Correct! B. Yes, it is property held for the production of income - 27 1/2 years C. Yes, it is personalty that can be fully depreciated in year 1 using bonus depreciation D. No, it is personal use property

B. Yes, it is property held for the production of income - 27 1/2 years

Match the vocabulary word with the definition. 1. Amount realized 2. Basis 3. Gain realized and recognized 4. Adjusted basis 5. Depreciation 6. Capital recovery

1. The proceeds from a sale of an asset 2. The amount of money (or other assets) that has already been taxed that is invested in an asset 3. The amount of the proceeds that will be subject to taxation 4. The cost basis adjusted for capital additions and cost recovery 5. A method of cost recovery 6. Taking a tax deduction for the cost plus capital additions to an asset

Which of the following assets qualifies as a Section 1231 asset? A. A bicycle owned by a college student to ride to class B. Greeting cards held by the owner of a Hallmark Card shop C. An apartment building held for rental to tenants D. Artwork prominentaly displayed in a taxpayer's summer residence

C. An apartment building held for rental to tenants

Which of the following are included in the basis of an asset? Check all that apply. Correct! 1. Cash paid to purchase the asset 2. Repair and maintenance costs over the life of the asset 3. Sales tax, freight, and installation costs 4. Property given in exchange for the asset 5. Non-recourse debt 6. Recourse debt

1. Cash paid to purchase the asset 3. Sales tax, freight, and installation costs 4. Property given in exchange for the asset 6. Recourse debt

On January 1, 2024 Bruce gifts Barbara some shares of Wayne Enterprise stock. He's owned the stock for years and has a basis in the stock of $50,000, the value at the time of the gift is $10,000. If Barbara later sells the stock on January 1 2025 for $6,000 what is her gain? A. $4,000 Long-term capital loss B. $44,000 Long-term capital loss C. Zero - there is no realized gain or loss D. $44,000 Short-term capital loss E. $4,000 Short-term capital loss

E. $4,000 Short-term capital loss

Horus experienced the following gains and losses during the year: Short-term losses of $10,000 Short-term gains of $5,000 Long-term losses of $1,000 Long-term gains of $3,000 What was Horus' NET gain or loss? A. $5,000 Short-term Capital Loss B. $3,000 Short-term Capital Loss C. $11,000 Long-term Capital Loss D. $2,000 Long-term Capital Gain

B. $3,000 Short-term Capital Loss

Clarice has a $75,000 capital loss on sale of her home. Which statement is true? A. She should sell stock to generate short-term capital gains to offset the loss B. She should take $3,000 loss on the tax return and carry the remaining loss forward to future years C. Losses on personal assets are not deductible, so this loss should not enter into a decision to sell stock in order to offset a loss D. She should sell stock to generate long-term capital gains to offset the loss

C. Losses on personal assets are not deductible, so this loss should not enter into a decision to sell stock in order to offset a loss

Your client Han comes to see you, worried about his taxes. The stock market has risen sharply this year. In fact his portfolio has doubled from $250,000 to $500,000, with a basis of only $100,000. His capital gains tax rate is 20%. He will have no stock sales this year. How much will he owe this year on the gain? A. $0 B. $50,000 C. $80,000 D. $30,000

A. $0

Your client has $20,000 of net long term capital loss carryovers and an extensive portfolio of stocks which have both appreciated and depreciated. What might be good advice? A. Sell additional stocks at a loss B. Hold on to all stocks in order to get all the appreciation that you can C. Sell some stocks at a $20,000 gain to offset the loss carryovers D. Selling some of the existing portfolio has nothing to do with the loss carryover

C. Sell some stocks at a $20,000 gain to offset the loss carryovers

On September 20 of Year 1, Henry purchased 1,000 shares of Tudor Enterprises, Inc. common stock for $25,000. He sold the shares for $35,000 on September 20 of Year 2. Which of the following statements correctly identifies the tax consequences of this transaction? A. Henry will recognize a $10,000 long-term capital gain on the sale B. Henry will recognize a $10,000 ordinary gain on the sale C. Henry will not be required to recognize the gain on the transaction D. Henry will recognize a $10,000 short-term capital gain on the sale

D. Henry will recognize a $10,000 short-term capital gain on the sale

Harry just sold a Honus Wagner baseball card for $1,000,000. He had no basis in it. Harry is in the 37% ordinary income tax bracket and the top capital gains bracket. He is married filing joint. At what rate will his capital gain be taxed? IMPORTANT: Look at your textbook for the capital gains rate for collectibles. Also, don't forget the NIIT. Assume the entire $1,000,000 is subject to the NIIT. A. 31.8% B. 20% C. 23.8% D. 28%

A. 31.8%

Martin bought TSLA at $900 per share for 10 shares, he later sold all 10 shares for $400 per share. 20 days later he buys 10 shares of TSLA again for $300 per share. What is Martin's gain / loss on the sale? A. $1,000 Gain B. $4,000 Loss C. $0 D. $5,000 Loss

C. $0

Margaret had net short-term capital losses of $5,000 and net long-term capital losses of $8,000. Which statement is true? A. Margaret can deduct $13,000 currently B. Margaret can deduct $3,000 currently, she will have $10,000 of capital loss carryovers C. Margaret can deduct $6,000 currently IF she is married filing jointly. She will have a long-term capital loss carryover of $7,000. If she is filing as not married, she will only be able to deduct $3,000 currently D. Margaret can deduct $6,000 currently, she will have $7,000 of capital loss carryovers

B. Margaret can deduct $3,000 currently, she will have $10,000 of capital loss carryovers

James is single and has an AGI of $300,000. As part of that, his investment income is $120,000. How much is his net investment income tax? A. $4,560 B. $6,460 C. $3,800 D. $38,000

C. $3,800

Mr. and Mrs. Darcy (Married Filing Joint) have taxable income of $120,000, before any capital gains. They plan to take $50,000 of capital gains in 2025. They have heard over and over on financial talk shows that the capital gains tax rate is 20%, so they have set aside $10,000 for the extra tax that will be incurred when they sell their stock. Which statement below would be correct? A. Good news! The top capital gains rate is 20%, but in your income range, the capital gains rate is only 10%. B. That's is excellent that you already have some cash set aside for the extra taxes. Unfortunately, the top capital gains tax rate was increased to 30% starting in 2022. C. Good news! The top capital gains rate is 20%, but in your income range, the capital gains rate is only 15%. D. Great job at managing your cash flow for taxes!

C. Good news! The top capital gains rate is 20%, but in your income range, the capital gains rate is only 15%.

Which of the following statements concerning the taxation of assets upon disposition is correct? A. Gains on Section 1231 assets are taxed at ordinary rates, and losses are taxed at capital rates B. Gain on ordinary assets may qualify for a special 0% rate C. Capital gains are always taxed at the taxpayer's marginal tax rate D. Gains on Section 1231 assets are taxed at long-term capital gains tax rates, and losses are taxed at ordinary income tax rates

D. Gains on Section 1231 assets are taxed at long-term capital gains tax rates, and losses are taxed at ordinary income tax rates

Which of the following statements are true? Check all that apply. 1. Taking gains on capital assets should be considered when clients have very large capital loss carryovers 2. If a client has large gains, selling capital assets to generate offsetting losses should be considered 3. If stocks are sold to generate gains which would be offset against large capital losses, it must result in a drastically changed portfolio allocation 4. Taxes should be the major deciding factor in portfolio allocation 5. Tax considerations can play a role in decisions regarding the timing of asset sales

1. Taking gains on capital assets should be considered when clients have very large capital loss carryovers 2. If a client has large gains, selling capital assets to generate offsetting losses should be considered 5. Tax considerations can play a role in decisions regarding the timing of asset sales

Which of the following statements correctly identifies when income is subject to tax? A. Realization occurs when the gain on an asset is reflected on the taxpayer's return B. Recognition occurs when an asset has been sold or exchanged C. As a general rule, realized gains are not recognized unless a provision in the IRC specifically requires recognition D. Capital gains must be realized before they can be recognized on a tax return

D. Capital gains must be realized before they can be recognized on a tax return

Which of the following are capital gains rates that may apply to a transaction? Check all that apply. 1. 20% 2. 28% 3. 0% 4. 15% 5. 25%

1. 20% 2. 28% 3. 0% 4. 15% 5. 25%

Kevin engaged in several capital transactions this year. He had a short-term capital gain of $400; a short-term capital loss of $600; a long-term capital gain of $800 and a long-term capital loss of $500. How will Kevin report these items on his income tax return? A. $100 of long-term capital gain B. Ordinary income of $100 C. $200 of short-term capital loss and $300 of long-term capital gain. D. $100 of short-term capital gain

A. $100 of long-term capital gain

Which of the following assets classify as Section 1245 Assets? Check all that apply. 1. Copiers used in an office 2. Widgets sold by Widget Co. 3. Computers used solely for streaming by a paid Twitch Streamer 4. The company storage shed, which is on company property and used for storing inventory 5. The office building, owned by the company

1. Copiers used in an office 3. Computers used solely for streaming by a paid Twitch Streamer

Namita owns a small business. After getting a few years use out of the desks she decides to buy new standing desks for her employees. She sells the old desks for $10,000. She'd originally bought the desks a little over six years ago for $70,000. Desks are 7 year property, and she was taking straight line depreciation Which of the following is the realized gain/(loss)? A. $60,000 Ordinary Loss B. $10,000 Section 1231 Capital Gain C. $10,000 Ordinary Loss D. Zero, there is no gain or loss

D. Zero, there is no gain or loss

Twenty years ago, William purchased a desk, which he used in his law practice for $8,000. The desk has been fully depreciated, i.e., $8,000 of depreciation has been taken on it. William sold the desk to Harry for $3,000. Which of the following will William include on his tax return as a result of the sale? A. $5,000 long-term capital loss B. $3,000 taxed at long-term capital gains rates C. $5,000 ordinary loss D. $3,000 taxed at ordinary rates

D. $3,000 taxed at ordinary rates

James sold a lathe that was used in his sole proprietorship for $5,000. The machine was originally purchased for $12,500 and James had claimed $6,000 of depreciation on it over a 4-year period. What will James include on his tax return as a result of the sale? A. $1,500 capital loss B. $7,500 long-term capital loss C. $7,500 ordinary loss D. $1,500 ordinary loss

D. $1,500 ordinary loss

Leroy has a piece of art that he bought at a garage sale for 50 cents. The Antique Road Show has valued it at $8,000. It is November 30. This year Leroy is in the 35% bracket. He anticipates being in the 15% bracket in the next year. For collectibles, gains are taxed at 28% UNLESS the regular tax rate in lower, so the gain would be taxed at only 15% next year. What might be a good strategy for Mr. Jenkins tax-wise? A. Push to sell the artwork in December in order to have cash flow for Christmas B. Sell the artwork in December to avoid the 3.8% investment income tax surcharge C. Delay the sale of the artwork until January of the following year in order to get better capital gains rates D. Sell the artwork in December in order to take advantage of the low capital gains rates currently

C. Delay the sale of the artwork until January of the following year in order to get better capital gains rates

Uwe has a Section 1231 gain for the current year (2025) of $20,000. In prior years, Uwe had the following net Section 1231 transactions: 2024 $5,000 Section 1231 Loss 2023 $2,000 Section 1231 Gain 2022 No transactions 2021 No transactions 2020 No transactions 2019 $5,000 Section 1231 Gain How much gain does Uwe recognize as ordinary income, how much as Section 1231 Capital Gain? A. $3,000 Orinary Income, $17,000 Section 1231 Capital Gains B. $5,000 Orinary Income, $15,000 Section 1231 Capital Gains C. $0 Orinary Income, $20,000 Section 1231 Capital Gains D. $15,000 Orinary Income, $5,000 Section 1231 Capital Gains

B. $5,000 Orinary Income, $15,000 Section 1231 Capital Gains

Rennie, a 12 year old middle school student, took over a paper route a year and half ago. At the time he took over the route, he purchased a new bike with a specially equipped basket to transport the papers each morning. How is the bike classified for income tax purposes? A. The bike is a Section 1231 asset B. The bike is a capital asset C. The bike is a personal asset D. The bike is an ordinary income asset

A. The bike is a Section 1231 asset

Which of the following statements is TRUE concerning the 5 Year Look Back Rule for 1231 Property? A. It is better to recognize losses in years before gains because gains are not subject to the 5 year look back rule B. Within a tax year transactions can be ordered to save taxes if gains are scheduled to happen first C. It is better to recognize gains in years before losses because losses are not subject to the 5 year look back rule D. Both gains and losses are subject to the 5 year look back rule, so the order of gains and losses in different years doesn't matter

C. It is better to recognize gains in years before losses because losses are not subject to the 5 year look back rule

Bill sold Ted a piece of real estate in San Demas for $1,000,000. Bill bought the property for $200,000 a few years ago. He made capital improvements to the property for $50,000. So far he's depreciated $150,000 of his basis. Straight-line depreciation would have allowed him only $130,000 of depreciation so far. What is Bill's Ordinary Income Gain, Unrecaptured 1250 Depreciation, and Capital Gain from the sale? A. Ordinary Income: $30,000 | Unrecaptured 1250 Depreciation: $120,000 | Capital Gain: $750,000 B. Ordinary Income: $130,000 | Unrecaptured 1250 Depreciation: $20,000 | Capital Gain: $650,000 C. Ordinary Income: Zero | Unrecaptured 1250 Depreciation: $150,000 | Capital Gain: $850,000 D. Ordinary Income: $20,000 | Unrecaptured 1250 Depreciation: $130,000 | Capital Gain: $750,000

D. Ordinary Income: $20,000 | Unrecaptured 1250 Depreciation: $130,000 | Capital Gain: $750,000

TRUE OR FALSE: When dealing with Section 1231 Assets, if it is determined that there is a loss on the asset, the designation of 1245 or 1250 property doesn't matter for tax treatment. False True

True

Which of the following statements properly describes the income tax treatment of asset sales? A. The sale of a typewriter used for 10 years in a trade or business at a gain (after recapturing any depreciation) will generate a capital gain B. The sale of Big Box Mart stock by an individual investor generates ordinary income C. The sale of classic movies on DVDs by Movie Emporia (a retail movie distributor) will generate income subject to capital gains tax D. The sale of a desk, which was used for 10 years in a business, at a loss will result in a capital loss

A. The sale of a typewriter used for 10 years in a trade or business at a gain (after recapturing any depreciation) will generate a capital gain

Which of the following statements is TRUE? A. All 1250 property is 1231 property, not all 1231 property is 1250 property B. All 1231 property is 1245 property, not all 1245 property is 1231 property C. All 1245 property is 1250 property, not all 1250 property is 1245 property D. All 1231 property is 1250 property, not all 1250 property is 1231 property

A. All 1250 property is 1231 property, not all 1231 property is 1250 property

TRUE OF FALSE: Section 1231 Property is classified as a Capital Asset

False

Hansel and Gretel own a home together that is their personal primary residence. Is their home personalty? A. Yes, the home is not depreciable property B. No, the home is personal-use realty C. Yes, the home is personalty due to the personal use of the asset D. No, the home is neither realty nor personalty

B. No, the home is personal-use realty

Kasey bought a lawn mower for $1,600 a few years ago. He's depreciated $400 of the value. He recently sold the lawn mower for $1,600. What is Kasey's taxable gain / loss? A. $400 Capital Gain B. $0 C. $400 Ordinary Gain D. $100 Ordinary Gain, $300 Capital Gain

C. $400 Ordinary Gain

Cobie, a single individual, is an avid coin collector. To raise some money to support her hobby, Cobie began to occasionally buy and sell coins about 10 years ago, incurring business-related expenses in those transactions. Cobie does not consider herself to be in the business of dealing in coins, and over the time he has been selling coins, she has never made a profit. This year, Cobie grossed $4,000 in sales, and had $4,500 in expenses associated with the activity. Cobie's AGI for the year (including any inclusion due to the coin trading activity) is $50,000, and aside from the coin trading loss, her only other permissible itemized deductions are mortgage interest of $8,000 and real estate taxes of $2,500. Which of the following statements concerning this situation is correct? A. Cobie will take the $500 loss from the coin business into his gross income. B. Since she has never made money from the activity, she is not required to report the purchase and sale transactions on her return. C. Cobie can offset the $4,000 in income with $4,000 of his expenses, so the coin trading activity will have no impact on her AGI. D. The increase in Cobie's taxable income as a result of the coin trading activity is equal to the income of $4,000.

Happy Harry not only uses drugs, he also sells them to a circle of friends and associates. This year, Harry grossed $650,000 from drug sales. He paid $125,000 to his street pushers to compensate them for their services, $200,000 for the raw drugs, $30,000 for rent for the drug processing and packaging plant, and $30,000 in supplies and equipment leasing costs. How much income will be subject to tax on Harry's income tax return? A. $275,000 B. $325,000 C. $450,000 D. $650,000

All of the following expenses incurred when an individual travels from his office to a client's place of business to discuss business matters will qualify as a business deduction, EXCEPT: A. A $6 toll to cross the commerce bridge B. Mileage expense for the round trip to visit the client C. A $30 parking ticket for parking in a no-parking zone since no other parking spaces were available D. Cost of printing material for the client meeting

Seth owns a mansion built on the cliff of a large island overlooking the Atlantic ocean. Each year, an international sailing race takes place around the Island, and large corporations descend on the town, inviting clients and business associates to entertain them. Carman Corporation, a custom designer of racing sailboats, is particularly interested in this event each year, and for the week and a half of the race, they rent Seth's mansion, paying him $200,000. At first, Seth was hesitant to rent the home, but decided that since it would only be a week and a half, he could go on vacation himself at that time. Seth incurs some costs associated with the rental, including storage charges for his valuables of $10,000, cleaning expenses before and after the rental of $8,000 and he estimates that the pro-rata portion of real estate taxes for the period of the rental is $1,000. How much income from this rental activity will be included in Seth's AGI? A. $0 B. $181,000 C. $190,000 D. $200,000

Attiana owns and operates an engineering consulting business as a sole proprietorship. For tax reporting, Attiana uses the cash method. Last year, she provided services to a local builder, and upon completing the task she was asked to do, she sent an invoice to the builder for $5,000. The builder never paid the bill, and recently filed for bankruptcy, so Attiana will not be able to collect the amount due. How should this bad debt be treated for income tax purposes? A. No bad debt deduction is permitted B. Attiana may deduct $5,000 from her business income C. Attiana may deduct $5,000 as a short-term capital loss D. Attiana may deduct $5,000 as a long-term capital loss

T OR F: Penalties and fines are intended to be a form of punishment for legal violations and are therefore not deductible.

True

T OR F: The IRS can inform a law enforcement agency, if a taxpayer is conducting an illegal business activity.

False

T OR F: Lobbying expenses for influencing legislation that both the federal and state level are deductible.

False

T OR F: The $1 million limit on deductible executive compensation does not apply to performance-based compensation.

False

T OR F: Raising horses is not generally considered to be a hobby activity.

False

T OR F: Hobby expenses are not deductible in tax years 2018-2025.

True

T OR F: Real estate that is rented for 15 days per year is always a non-taxable activity.

False

T OR F: Mixed-use rental activities are not subject to the passive loss, limitations or the at-risk rules.

True

T OR F: If a dent is a non-business debt, a bad debt deduction will only be allowed when the debt becomes wholly worthless.

True

T OR F: IRC section 165 creates an artificial sale date for worthless securities.

True

T OR F: Section 1244 is intended to discourage investment in small businesses.

False

T OR F: Net offering losses can be carried forward, but cannot generally be carried back.

True

T OR F: If a taxpayer takes a distribution from a qualified retirement plan or IRA prior to age 59 1/2, a 25% excise tax applies to the distribution.

False

T OR F: Losses related to wash sales or temporary disallowed.

True

T or F: Losses incurred in related party transactions are permanently disallowed.

True

Trisha, age 66, has a severe asthmatic condition, and her physician recommended that she install a lap pool in her home so that she can swim regularly, which should help control her condition. Trisha has a friend who is a real estate agent, and strongly advised her not to install the pool, since pools depress the market value of homes in the area. If Trisha's AGI for the year is $100,000 how much of the cost of the lap pool can Trisha actually deduct as a medical expense if it cost her $12,000 to install the pool and all of her other health insurance costs were covered by her health insurance policy? The value of the house did not change due to the pool. A) $0 B) $4,500 as an itemized deduction C) $7,500 as an itemized deduction D) $12,000 as an adjustment to income

All of the following statements regarding the Section 199A qualified business income deduction are correct, EXCEPT: A) The deduction is generally 20% of qualified business income. B) The deduction is not available for service businesses such as health and accounting. C) The deduction may be limited based on taxable income. D) The deduction may be phased out for high income taxpayers.

In June of this year, Wynonna purchased her first home. The price of the house was $260,000, and she financed the purchase with a 30-year, $200,000 mortgage. Since she plans on staying in the home for quite a while, and she expects interest rates to rise in the future, she paid $4,000 in points to receive a lower interest rate on the loan. As of the end of the year, Wynonna had paid $7,614 in interest on the loan by making her monthly installment payments. How much should she claim as mortgage interest on her itemized deductions this year? A) $7,614 B) $7,747 C) $9,614 D) $11,614

Jake's AGI for 2022 is $100,000. He inherited a large amount of money from the estate of his grandfather, and is very charitably inclined. A recent earthquake devastated several cities on the West Coast, and Jake wanted to assist in getting the people affected back on their feet. He gave a $75,000 donation to the Red Cross, which is spearheading relief efforts in the region. How much of the contribution can Jake deduct on his income tax return in 2022? A) $20,000 B) $30,000 C) $60,000 D) $75,000

Owen is a tax attorney who specializes in intergenerational wealth transfer planning. He is also very charitably inclined, and sits on several charitable boards. A local animal shelter and Friends of Animals group recently decided to work together on joint goals, and decided to form a new charitable organization, which meets the definition of a public charity. Owen created the organization and received exempt determination status from the IRS. He usually charges $5,000 to perform this service, plus the exempt determination letter fee charged by the IRS of $500, but he volunteered for this activity since his wife will be on the board. Owen was not reimbursed for the expenses he incurred. Assuming that his AGI and contribution base is $150,000, how much can Owen deduct for income tax purposes? A) $0 B) $600 C) $2,800 D) $5,600

T or F: Personal expenses are always deductible.

False

T or F: The standard deduction is not adjusted for inflation.

False

T or F: Qualifying medical expenses in excess of 7.5% of AGI are deductible as an itemized deduction.

True

T or F: Medical expenses must be medically necessary and advised by a physician in order to be deductible.

True

T or F: Taxpayers must include state, income tax refunds in taxable income to the extent that a deduction was previously taken, and a tax benefit realized, first state income taxes paid in a prior tax year.

True

T or F: Only property taxes paid on the taxpayer’s primary residence are deductible.

False

T or F: Interest is only deductible if it is incurred on a valid obligation to pay a fixed or determinable sum of money in return for the use of the money.

True

T or F: Taxpayers are permitted to deduct the interest on an unlimited amount of home indebtedness.

False

T or F: Gifts of services qualify for a charitable income tax deduction.

False

T or F: Gifts of cash or property must be made by the close of the taxable year in order to be deductible.

True

T or F: Gifts of cash and non-long-term gain property to a public charity or deductible to the extent that they do not exceed 30% of the taxpayer’s AGI.

False

T or F: Whether charity uses donated property in a way that is related to its tax-exempt function may affect the amount and type of deduction to which a taxpayer is entitled.

True

T or F: In 2025, casualty losses are only deductible if they result from sudden or unexpected events that are declared a disaster by the president.

True

T or F: Casualty losses must exceed the greater of $100 or 10% of the taxpayers AGI in order to be deductible on Schedule A.

False

T or F: Gambling losses are a miscellaneous itemized, deduction, subject to the 2% floor.

False

T or F: Professional fees or union dues are deductible as an employee business expense in 2025 if they are not reimbursed by the employer.

False

T or F: The cost of materials for researching investments is deductible as a miscellaneous itemized deduction in 2025.

False

T or F: A tax credit is an amount that is added to a calculated tax.

False

T or F: Nonrefundable tax credit can reduce the tax on taxable income to zero, but they cannot generate a tax refund.

True

T or F: Nonrefundable tax credits must be used in a specific sequence.

True

T or F: The benefit of a tax credit depends on the taxpayer’s marginal tax rate.

False

T or F: A taxpayer, who is eligible to claim a foreign tax credit may, in the alternative, claim an itemized deduction for the taxes paid.

True

T or F: The child and dependent care expenses credit is intended to provide financial relief to non-working individuals.

False

T or F: Payment for employment–related care that are made to relatives of the taxpayer may qualify for the child and dependent care expenses credit.

True

T or F: A taxpayer may claim both the American Opportunity Tax Credit and the lifetime learning credit based on the same qualified education expenses.

False

T or F: The education credits are normally claimed by the taxpayer who pays the qualified education expenses.

True

T or F: The felony drug conviction role does not apply to the American Opportunity Tax Credit.

False

T or F: The maximum annual lifetime learning credit is $2000.

True

T or F: A 19-year-old person may be a qualifying child for the purposes of the child tax credit.

False

T or F: The child tax credit phaseout range begins at $400,000 for taxpayers for married filing jointly in 2025.

True

T or F: Expenses for the adoption of a spouse’s child or not qualifying adoption expenses.

True

T or F: The maximum credit (subject to income limitations) is allowed for the adoption of a child with special needs even if the adopting parent has no qualified adoption expenses.

True

T or F: For 2025, the qualified adoption expenses credit begins to phase out for MAGI above $259,190.

True

T or F: A taxpayer who has too much OASDI tax withheld may only take a refundable credit if the taxpayer has more than one employer.

True

T or F: The earned income credit is not a refundable credit.

False

T or F: The components of the general business credit can be used in whatever order is most advantageous to the taxpayer.

False

T or F: All components of the general business credit are reported on Form 3800.

True

T or F: The work opportunity credit is intended to promote the hiring of targeted groups of people who have special needs or high unemployment rates.

True

T or F: The disabled access credit may not exceed $5000.

True

T or F: The taxpayer’s adjusted basis is subtracted from the amount realized to calculate gain or loss.

True

T or F: The purpose of basis is to make sure that income is only taxed twice.

False

T or F: Basis may be used to determine a taxpayer’s depreciation deductions.

True

T or F: A taxpayer’s cost basis generally does not include non-recourse debt.

True

T or F: The earnings of a pass-through entity may increase the basis of the owner of that entity.

True

T or F: Depreciation deductions increase the basis of an asset.

False

T or F: A taxpayer’s basis in inherited property is the same as the decedent’s basis in the property.

False

T or F: Gift tax paid never affects the donee’s basis in gifted property.

False

T or F: Property transferred between spouses as a carryover basis.

True

T or F: If property is sold to a related party at a loss, the double-basis rule applies.

True

T or F: The purpose of depreciation is to allow the taxpayer to recoup part of their investment earlier than the date that the asset is sold.

True

T or F: Two methods of depreciation are straight-line and double-declining-balance.

True

T or F: Most cars are appreciated over a period of seven years.

False

T or F: 40% bonus depreciation can be taken for assets placed in service in 2025.

True

T or F: Amortization is cost recovery for intangible assets.

True

T or F: The Section 179 election allows business owners to expense property placed in service during the year instead of capitalizing it.

True

T or F: Section 179 treatment cannot result in the loss for the business.

True

T or F: Generally, a copyright in the hands of the creator is a capital asset.

False

T or F: Inventory is an ordinary income asset.

True

T or F: Section 1231 assets are afforded special tax treatment.

True

T or F: Notes receivable are ordinary income assets.

True

T or F: The deductibility of ordinary losses is limited to $3000 per year.

False

T or F: Depreciable personal property used in a trade or business is section 1231 property.

True

T or F: Games from the sale of section 1231 property are always taxed as ordinary income.

False

T or F: Losses on Section 1231 property are treated as ordinary losses.

True

T or F: Depreciation recapture applies upon the sale or exchange of a capital asset.

False

T or F: When a personal section 1231 asset is sold at a gain, the gain is always ordinary income.

False

T or F: If a section 1231 asset is sold at a loss, the resulting loss is always a capital loss.

False

T or F: Real property placed in service after 1986 is generally not subject to depreciation recapture.

True

T or F: Unrecaptured Section 1250 depreciation is equal to the lesser of the gain or the straight-line depreciation.

True

T or F: Depreciation recapture carries over to the donee for gifted property.

True

T or F: Sales of tangible personalty but not involuntary conversions are affected by the carryover of depreciation recapture.

False

T or F: Depreciation recapture is extinguished upon death.

True

T or F: Under the five-year lookback rule, net section 1231 losses in the current tax year will be subject to ordinary loss rules to the extent of the 1231 gains of the last five years.

False

T or F: Capital gains are subject to tax upon either a realization event or a recognition event.

False

T or F: When a taxpayer sells an asset in exchange for cash, a realization event occurs.

True

T or F: The amount realized on a sale includes cash in the fair market value of any other property received.

True

T or F: Losses associated with wall sales are permanently disallowed.

False

T or F: An asset held for exactly one year has a long-term holding period.

False

T or F: All taxpayers are submitted to gain tax rate of 15%.

False

T or F: Unrecaptured Section 1250 depreciation applies to all depreciable property.

False

T or F: Capital gains are taxed at the same rate under the AT&T system as they are under the regular income tax system.

True

T or F: $3000 of net losses may be recognized against other income each year.

True

T or F: A single taxpayer can deduct up to $50,000 of the loss from a small business stock as an ordinary loss if certain requirements are met.

True

T or F: A taxpayer with a $20,000 long-term gain and a $5,000 short-term capital loss has a net 15,000 short-term capital gain.

False

Exam #2 (CH. 7-12) Flashcards

(200 cards)