[Intuit Academy Tax Level 1 Exam] COMPLETE EXAM
QUESTIONS AND VERIFIED ANSWERS | 2026–2027 LATEST
UPDATE | GUARANTEED PASS | DETAILED RATIONALES |
FULL STUDY GUIDE | EXAM PREP | PRACTICE TEST |
CERTIFICATION PREPARATION
1. A taxpayer, age 45, is single and has no dependents. Their only income is from wages, and their
Form W-2 shows federal income tax withheld. Which filing status is this taxpayer eligible to use?
A. Head of Household
B. Married Filing Separately
C. Single
D. Qualifying Surviving Spouse
Correct Answer: C. Single
Rationale: The taxpayer is unmarried with no qualifying dependents and does not meet the
requirements for Head of Household or Qualifying Surviving Spouse. Married Filing Separately is not
applicable to an unmarried individual. The Single filing status is the correct and only appropriate
choice for a single individual with no dependents.
2. A married couple, both under 65, have a combined adjusted gross income (AGI) of $32,000. They
file a joint return. They have no dependents and take the standard deduction. What is their correct
filing status, and are they required to file a federal income tax return?
A. Married Filing Separately, and they are required to file.
B. Married Filing Jointly, and they are required to file.
C. Married Filing Jointly, and they are not required to file.
D. Married Filing Separately, and they are not required to file.
Correct Answer: B. Married Filing Jointly, and they are required to file.
Rationale: Married Filing Jointly is the most common status for a married couple. The standard
deduction for 2026 for a married couple filing jointly is significantly less than their AGI of $32,000,
meaning they have taxable income above the filing threshold. Therefore, they are required to file a
federal return. The Married Filing Separately status could be used, but it is not the typical choice and
is often less beneficial.
3. Which of the following is a primary characteristic of a capital asset?
A. It is held for sale to customers in the ordinary course of business.
B. It is a personal residence or stocks and bonds held for investment.
C. It includes depreciable business property used in a trade or business.
D. It is inventory or property held primarily for sale.
Correct Answer: B. It is a personal residence or stocks and bonds held for investment.
Rationale: Capital assets are generally defined as property held for personal use or investment.
Examples include a personal residence, stocks, bonds, and a car for personal use. Inventory, business
,accounts receivable, and depreciable business property are specifically excluded from the definition of
a capital asset and are treated as ordinary income property.
4. A taxpayer received a $5,000 refund of state income taxes in 2026. They itemized their
deductions in 2025 and deducted $4,000 in state and local taxes. How much of the refund, if any,
must be included in their gross income for 2026?
A. $0
B. $1,000
C. $4,000
D. $5,000
Correct Answer: C. $4,000
Rationale: The taxable amount of a state tax refund is generally limited to the amount of the tax that
was actually deducted in the prior year and which provided a tax benefit. The taxpayer deducted
$4,000, so only up to that amount is taxable. The $5,000 refund is taxable only to the extent of the
tax benefit received from the deduction, which was $4,000. The extra $1,000 is not taxable because it
was not deducted.
5. For the 2026 tax year, what is the maximum amount of self-employment tax that a taxpayer can
be subject to?
A. 15.3% of net earnings, with no maximum limit.
B. The Social Security portion (12.4%) applies to a wage base limit, and the Medicare portion (2.9%)
applies to all net earnings.
C. The entire 15.3% applies to all net earnings without limit.
D. The Social Security portion (12.4%) applies to a wage base limit, and the Medicare portion (2.9%)
is also limited to that same wage base.
Correct Answer: B. The Social Security portion (12.4%) applies to a wage base limit, and the
Medicare portion (2.9%) applies to all net earnings.
Rationale: Self-employment tax consists of two parts: Social Security (12.4%) and Medicare (2.9%).
The Social Security portion has a maximum wage base limit, above which no Social Security tax is
owed. The Medicare portion has no wage base limit and applies to all net earnings from self-
employment.
6. An individual is a U.S. citizen who has been living and working in London for the past four years.
They are considered a bona fide resident of the United Kingdom. They earn $110,000 in salary
from a U.K. employer. What is the maximum amount of foreign earned income they can
potentially exclude from their gross income for the 2026 tax year?
A. $110,000
B. $100,000
C. $120,000
D. $130,000
Correct Answer: C. $120,000
Rationale: For the 2026 tax year, the maximum foreign earned income exclusion is $120,000. This
amount is adjusted annually for inflation. An eligible taxpayer can exclude this amount from their
gross income, subject to certain other criteria such as the physical presence test or bona fide
,residence test. The exclusion is limited to their actual foreign earned income, but the maximum
exclusion amount is $120,000.
7. A taxpayer's child, age 10, has investment income of $1,000 from a savings account and $400
from a stock dividend. The child has no earned income. Under the "kiddie tax" rules, how is this
income taxed?
A. It is taxed entirely at the parent's marginal tax rate.
B. It is taxed at the child's tax rate, but the first $1,250 is unearned income and is not taxed.
C. It is taxed at the child's tax rate, with the first $1,250 of unearned income taxed at the child's rate,
and the next $1,250 taxed at the parent's rate.
D. It is taxed at the child's tax rate, with the first $1,300 of unearned income taxed at the child's rate,
and the next $1,300 taxed at the parent's rate.
Correct Answer: C. It is taxed at the child's tax rate, with the first $1,250 of unearned income taxed
at the child's rate, and the next $1,250 taxed at the parent's rate.
Rationale: The kiddie tax applies to unearned income of children under 19 (or full-time students under
24). For 2026, the standard deduction for a dependent is the greater of $1,250 or earned income plus
$400, up to the regular standard deduction. If the child has only unearned income, the first $1,250 is
generally not taxed due to the standard deduction. Unearned income above $1,250 is taxed at the
parent's marginal rate. As the child's total unearned income is $1,400, the first $1,250 is untaxed, the
next $1,250 would be taxed at the parent's rate, but since the total is only $1,400, only $150 is taxed
at the parent's rate.
8. A taxpayer is a sole proprietor operating a small bakery. During the year, they pay $2,000 for a
new oven that has a useful life of seven years. Under the de minimis safe harbor election, can they
deduct the full cost of the oven in the year it was purchased?
A. Yes, if they have an applicable financial statement (AFS) and a written accounting procedure.
B. No, because the cost exceeds $1,000.
C. Yes, if they elect to deduct the cost under the safe harbor.
D. No, because it must be capitalized and depreciated over seven years.
Correct Answer: A. Yes, if they have an applicable financial statement (AFS) and a written
accounting procedure.
Rationale: The de minimis safe harbor election allows taxpayers to deduct the cost of certain property
if the amount paid is less than a certain threshold. For businesses with an applicable financial
statement (AFS), the threshold is $5,000 per invoice or item. If the taxpayer does not have an AFS, the
threshold is $2,500. A written accounting procedure is required to substantiate the election. The cost
of the oven is $2,000, which qualifies under the $2,500 threshold if they do not have an AFS, but the
question specifies "if they have an AFS" to clarify the condition.
9. A taxpayer owns a rental property. They paid $1,200 for a new water heater and $800 for a new
roof. Which of these costs must be capitalized and depreciated?
A. Both the water heater and the roof.
B. Neither, they can be expensed as repairs.
C. Only the water heater.
D. Only the roof.
Correct Answer: A. Both the water heater and the roof.
, Rationale: Both a water heater and a roof are considered improvements that add value to the
property, prolong its useful life, or adapt it to a new use. They are not considered routine repairs and
must be capitalized and depreciated over their respective useful lives. Routine maintenance and
repairs, such as fixing a leaky pipe, are currently expensed, but these are significant capital
improvements.
10. A taxpayer received a Form 1099-INT showing $500 of interest income from a U.S. Treasury
bond. They also received $100 of interest from a corporate bond. What is the total amount of
interest income that must be reported on their federal tax return?
A. $600
B. $500
C. $100
D. $0
Correct Answer: A. $600
Rationale: All interest income from U.S. Treasury bonds is taxable at the federal level but exempt from
state and local taxes. Interest from corporate bonds is also taxable at the federal level. Both sources
of interest income must be reported on the federal income tax return. The total interest income to
report is $500 + $100 = $600.
11. A taxpayer, age 30, withdrew $5,000 from their traditional IRA to pay for medical expenses that
exceeded 7.5% of their AGI. They did not have health insurance. What is the tax treatment of this
distribution?
A. It is fully taxable and subject to the 10% early distribution penalty.
B. It is fully taxable, but the penalty is waived due to the medical expense exception.
C. It is not taxable, and the penalty is waived.
D. It is not taxable, but the 10% penalty applies.
Correct Answer: B. It is fully taxable, but the penalty is waived due to the medical expense
exception.
Rationale: The distribution from a traditional IRA is generally taxable as ordinary income. The 10%
early distribution penalty is waived if the distribution is used to pay for unreimbursed medical
expenses that exceed 7.5% of the taxpayer's AGI. The taxpayer is under 59 ½, so the penalty would
apply, but the exception applies. The distribution remains taxable, but the penalty is waived.
12. A taxpayer sold a rental property for $250,000. They originally purchased it for $150,000 and
have claimed $40,000 in depreciation. What is the amount of gain that is subject to the 25%
unrecaptured Section 1250 gain tax rate?
A. $100,000
B. $140,000
C. $40,000
D. $0
Correct Answer: C. $40,000
Rationale: The portion of the gain attributable to depreciation taken on the property is the amount of
unrecaptured Section 1250 gain. This gain is taxed at a maximum rate of 25%. The total gain is
QUESTIONS AND VERIFIED ANSWERS | 2026–2027 LATEST
UPDATE | GUARANTEED PASS | DETAILED RATIONALES |
FULL STUDY GUIDE | EXAM PREP | PRACTICE TEST |
CERTIFICATION PREPARATION
1. A taxpayer, age 45, is single and has no dependents. Their only income is from wages, and their
Form W-2 shows federal income tax withheld. Which filing status is this taxpayer eligible to use?
A. Head of Household
B. Married Filing Separately
C. Single
D. Qualifying Surviving Spouse
Correct Answer: C. Single
Rationale: The taxpayer is unmarried with no qualifying dependents and does not meet the
requirements for Head of Household or Qualifying Surviving Spouse. Married Filing Separately is not
applicable to an unmarried individual. The Single filing status is the correct and only appropriate
choice for a single individual with no dependents.
2. A married couple, both under 65, have a combined adjusted gross income (AGI) of $32,000. They
file a joint return. They have no dependents and take the standard deduction. What is their correct
filing status, and are they required to file a federal income tax return?
A. Married Filing Separately, and they are required to file.
B. Married Filing Jointly, and they are required to file.
C. Married Filing Jointly, and they are not required to file.
D. Married Filing Separately, and they are not required to file.
Correct Answer: B. Married Filing Jointly, and they are required to file.
Rationale: Married Filing Jointly is the most common status for a married couple. The standard
deduction for 2026 for a married couple filing jointly is significantly less than their AGI of $32,000,
meaning they have taxable income above the filing threshold. Therefore, they are required to file a
federal return. The Married Filing Separately status could be used, but it is not the typical choice and
is often less beneficial.
3. Which of the following is a primary characteristic of a capital asset?
A. It is held for sale to customers in the ordinary course of business.
B. It is a personal residence or stocks and bonds held for investment.
C. It includes depreciable business property used in a trade or business.
D. It is inventory or property held primarily for sale.
Correct Answer: B. It is a personal residence or stocks and bonds held for investment.
Rationale: Capital assets are generally defined as property held for personal use or investment.
Examples include a personal residence, stocks, bonds, and a car for personal use. Inventory, business
,accounts receivable, and depreciable business property are specifically excluded from the definition of
a capital asset and are treated as ordinary income property.
4. A taxpayer received a $5,000 refund of state income taxes in 2026. They itemized their
deductions in 2025 and deducted $4,000 in state and local taxes. How much of the refund, if any,
must be included in their gross income for 2026?
A. $0
B. $1,000
C. $4,000
D. $5,000
Correct Answer: C. $4,000
Rationale: The taxable amount of a state tax refund is generally limited to the amount of the tax that
was actually deducted in the prior year and which provided a tax benefit. The taxpayer deducted
$4,000, so only up to that amount is taxable. The $5,000 refund is taxable only to the extent of the
tax benefit received from the deduction, which was $4,000. The extra $1,000 is not taxable because it
was not deducted.
5. For the 2026 tax year, what is the maximum amount of self-employment tax that a taxpayer can
be subject to?
A. 15.3% of net earnings, with no maximum limit.
B. The Social Security portion (12.4%) applies to a wage base limit, and the Medicare portion (2.9%)
applies to all net earnings.
C. The entire 15.3% applies to all net earnings without limit.
D. The Social Security portion (12.4%) applies to a wage base limit, and the Medicare portion (2.9%)
is also limited to that same wage base.
Correct Answer: B. The Social Security portion (12.4%) applies to a wage base limit, and the
Medicare portion (2.9%) applies to all net earnings.
Rationale: Self-employment tax consists of two parts: Social Security (12.4%) and Medicare (2.9%).
The Social Security portion has a maximum wage base limit, above which no Social Security tax is
owed. The Medicare portion has no wage base limit and applies to all net earnings from self-
employment.
6. An individual is a U.S. citizen who has been living and working in London for the past four years.
They are considered a bona fide resident of the United Kingdom. They earn $110,000 in salary
from a U.K. employer. What is the maximum amount of foreign earned income they can
potentially exclude from their gross income for the 2026 tax year?
A. $110,000
B. $100,000
C. $120,000
D. $130,000
Correct Answer: C. $120,000
Rationale: For the 2026 tax year, the maximum foreign earned income exclusion is $120,000. This
amount is adjusted annually for inflation. An eligible taxpayer can exclude this amount from their
gross income, subject to certain other criteria such as the physical presence test or bona fide
,residence test. The exclusion is limited to their actual foreign earned income, but the maximum
exclusion amount is $120,000.
7. A taxpayer's child, age 10, has investment income of $1,000 from a savings account and $400
from a stock dividend. The child has no earned income. Under the "kiddie tax" rules, how is this
income taxed?
A. It is taxed entirely at the parent's marginal tax rate.
B. It is taxed at the child's tax rate, but the first $1,250 is unearned income and is not taxed.
C. It is taxed at the child's tax rate, with the first $1,250 of unearned income taxed at the child's rate,
and the next $1,250 taxed at the parent's rate.
D. It is taxed at the child's tax rate, with the first $1,300 of unearned income taxed at the child's rate,
and the next $1,300 taxed at the parent's rate.
Correct Answer: C. It is taxed at the child's tax rate, with the first $1,250 of unearned income taxed
at the child's rate, and the next $1,250 taxed at the parent's rate.
Rationale: The kiddie tax applies to unearned income of children under 19 (or full-time students under
24). For 2026, the standard deduction for a dependent is the greater of $1,250 or earned income plus
$400, up to the regular standard deduction. If the child has only unearned income, the first $1,250 is
generally not taxed due to the standard deduction. Unearned income above $1,250 is taxed at the
parent's marginal rate. As the child's total unearned income is $1,400, the first $1,250 is untaxed, the
next $1,250 would be taxed at the parent's rate, but since the total is only $1,400, only $150 is taxed
at the parent's rate.
8. A taxpayer is a sole proprietor operating a small bakery. During the year, they pay $2,000 for a
new oven that has a useful life of seven years. Under the de minimis safe harbor election, can they
deduct the full cost of the oven in the year it was purchased?
A. Yes, if they have an applicable financial statement (AFS) and a written accounting procedure.
B. No, because the cost exceeds $1,000.
C. Yes, if they elect to deduct the cost under the safe harbor.
D. No, because it must be capitalized and depreciated over seven years.
Correct Answer: A. Yes, if they have an applicable financial statement (AFS) and a written
accounting procedure.
Rationale: The de minimis safe harbor election allows taxpayers to deduct the cost of certain property
if the amount paid is less than a certain threshold. For businesses with an applicable financial
statement (AFS), the threshold is $5,000 per invoice or item. If the taxpayer does not have an AFS, the
threshold is $2,500. A written accounting procedure is required to substantiate the election. The cost
of the oven is $2,000, which qualifies under the $2,500 threshold if they do not have an AFS, but the
question specifies "if they have an AFS" to clarify the condition.
9. A taxpayer owns a rental property. They paid $1,200 for a new water heater and $800 for a new
roof. Which of these costs must be capitalized and depreciated?
A. Both the water heater and the roof.
B. Neither, they can be expensed as repairs.
C. Only the water heater.
D. Only the roof.
Correct Answer: A. Both the water heater and the roof.
, Rationale: Both a water heater and a roof are considered improvements that add value to the
property, prolong its useful life, or adapt it to a new use. They are not considered routine repairs and
must be capitalized and depreciated over their respective useful lives. Routine maintenance and
repairs, such as fixing a leaky pipe, are currently expensed, but these are significant capital
improvements.
10. A taxpayer received a Form 1099-INT showing $500 of interest income from a U.S. Treasury
bond. They also received $100 of interest from a corporate bond. What is the total amount of
interest income that must be reported on their federal tax return?
A. $600
B. $500
C. $100
D. $0
Correct Answer: A. $600
Rationale: All interest income from U.S. Treasury bonds is taxable at the federal level but exempt from
state and local taxes. Interest from corporate bonds is also taxable at the federal level. Both sources
of interest income must be reported on the federal income tax return. The total interest income to
report is $500 + $100 = $600.
11. A taxpayer, age 30, withdrew $5,000 from their traditional IRA to pay for medical expenses that
exceeded 7.5% of their AGI. They did not have health insurance. What is the tax treatment of this
distribution?
A. It is fully taxable and subject to the 10% early distribution penalty.
B. It is fully taxable, but the penalty is waived due to the medical expense exception.
C. It is not taxable, and the penalty is waived.
D. It is not taxable, but the 10% penalty applies.
Correct Answer: B. It is fully taxable, but the penalty is waived due to the medical expense
exception.
Rationale: The distribution from a traditional IRA is generally taxable as ordinary income. The 10%
early distribution penalty is waived if the distribution is used to pay for unreimbursed medical
expenses that exceed 7.5% of the taxpayer's AGI. The taxpayer is under 59 ½, so the penalty would
apply, but the exception applies. The distribution remains taxable, but the penalty is waived.
12. A taxpayer sold a rental property for $250,000. They originally purchased it for $150,000 and
have claimed $40,000 in depreciation. What is the amount of gain that is subject to the 25%
unrecaptured Section 1250 gain tax rate?
A. $100,000
B. $140,000
C. $40,000
D. $0
Correct Answer: C. $40,000
Rationale: The portion of the gain attributable to depreciation taken on the property is the amount of
unrecaptured Section 1250 gain. This gain is taxed at a maximum rate of 25%. The total gain is
