WGU C237 TAXATION 1 PRACTICE EXAM 2025/2026
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔An individual purchases a piece of property with a fair market value of $50,000 for
$54,000. The individual uses a loan for $44,000 and pays the other $10,000 in cash. In
addition, the individual pays $1,000 in transactions costs to purchase the property and
expects to earn $5,000 per year from renting the property to others. What is the basis
for this property? - ✔✔$55,000
✔✔What is an example of an ordinary asset? - ✔✔Inventory
✔✔What is an ordinary asset? - ✔✔An ordinary asset is an item that holds future
economic value to a company or individual, and that future economic benefit is
expected to be used within the next year.
✔✔Which item is a capital asset? - ✔✔A personal residence
✔✔What is a capital asset? - ✔✔Capital assets are significant pieces of property such
as homes, cars, investment properties, stocks, bonds, and even collectibles or art.
✔✔An individual with a taxable income of $100,000 sells 200 shares of stock at a
market price of $60 per share. One hundred shares of the stock were acquired 2 years
earlier at a price of $90 per share, and 100 shares were acquired five years earlier at a
price of $40 per share. What is the effect of the transaction on the individual's tax
circumstances? - ✔✔A net long-term capital loss of $1,000
✔✔An individual sells 200 shares of stock at a market price of $50 per share. He
acquired 100 shares of the stock two months earlier at a price of $55 per share, and he
also acquired 100 shares two years earlier at a price of $30 per share.What is the net
effect of these transactions on this individual's gross income? - ✔✔A net capital gain of
$1,500
✔✔Individual A originally acquired stock on January 6, year 1. On March 8, year 2,
Individual B received the stock as a gift from Individual A and sold it on April 15, year 2
for fair market value. When does Individual B's holding period begin? - ✔✔January 6,
year 1
✔✔Define holding period - ✔✔The holding period is the length of time you own property
before you sell it. If you hold property for a year or less, short-term capital gain or loss
rules apply. If you hold property for more than a year, long-term capital gain or loss
rules apply.
✔✔Which mortgage interest expense is a reduction for adjusted gross income? -
✔✔Rental Home
, ✔✔What is a role of deductions from adjusted gross income, excluding the qualified
business income deduction? - ✔✔It allows deduction of medical expenses.
✔✔What is deductible as an investment expense? - ✔✔Interest on a loan to purchase
land for an investment
✔✔Which item is deductible as a business expense if a doctor invests personal money
in various properties? - ✔✔Property taxes paid on a medical office
✔✔A taxpayer runs an automotive repair business in a building he owns. The income
and expenses are reported on Form 1040, Schedule C. There was no section 179
election made. Which action represents a deductible business expense for the current
tax year, and is therefore not subject to capitalization and depreciation? - ✔✔Repairing
a leak in the roof of the building
✔✔Which item is a deductible business expense? - ✔✔Purchase of a 12-month liability
insurance policy
✔✔A small-business owner contracts a painting company to paint her building. The
small-business owner gives the painting company a $2,000 down payment against the
total contract price of $10,000. The painting company starts the job in November of year
1 and completes the job in January of year 2. How will the small-business owner deduct
this expense, given that she is a cash method taxpayer? - ✔✔Year 1: $2,000, year 2:
$8,000
✔✔In September of year 1, Jason agreed to a contract in which he agreed to redo the
floors in an office building and be paid $15,000 for the job. The owner of the office
building gave Jason the first $5,000 payment toward the contract on the day the
contract was signed. Jason started and completed the work in November of year 1.
Upon completion of the project, Jason's bookkeeper mailed an invoice to the building
owner for the balance owed, with a due date of February 15th of year 2. Jason received
payment in full from the building owner in January of year 2. Jason uses the accrual
basis method of accounting for both financial and tax reporting purposes. Which
amounts should Jason report as income from this job when filing taxes in year 1 and
year 2? - ✔✔$15,000 in year 1, and $0 in year 2
✔✔A 33-year-old commercial airline pilot is trying to decide whether to claim a standard
tax deduction or itemize their deductions for 2021. The taxpayer calculates $11,500 of
itemized deductions. This individual is single with no children. Which deduction should
this individual claim? - ✔✔A $12,550 standard deduction
✔✔A 50-year old individual is calculating his deductions for a given year. The individual
examines his records and finds that in the last calendar year he donated $500 to
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔An individual purchases a piece of property with a fair market value of $50,000 for
$54,000. The individual uses a loan for $44,000 and pays the other $10,000 in cash. In
addition, the individual pays $1,000 in transactions costs to purchase the property and
expects to earn $5,000 per year from renting the property to others. What is the basis
for this property? - ✔✔$55,000
✔✔What is an example of an ordinary asset? - ✔✔Inventory
✔✔What is an ordinary asset? - ✔✔An ordinary asset is an item that holds future
economic value to a company or individual, and that future economic benefit is
expected to be used within the next year.
✔✔Which item is a capital asset? - ✔✔A personal residence
✔✔What is a capital asset? - ✔✔Capital assets are significant pieces of property such
as homes, cars, investment properties, stocks, bonds, and even collectibles or art.
✔✔An individual with a taxable income of $100,000 sells 200 shares of stock at a
market price of $60 per share. One hundred shares of the stock were acquired 2 years
earlier at a price of $90 per share, and 100 shares were acquired five years earlier at a
price of $40 per share. What is the effect of the transaction on the individual's tax
circumstances? - ✔✔A net long-term capital loss of $1,000
✔✔An individual sells 200 shares of stock at a market price of $50 per share. He
acquired 100 shares of the stock two months earlier at a price of $55 per share, and he
also acquired 100 shares two years earlier at a price of $30 per share.What is the net
effect of these transactions on this individual's gross income? - ✔✔A net capital gain of
$1,500
✔✔Individual A originally acquired stock on January 6, year 1. On March 8, year 2,
Individual B received the stock as a gift from Individual A and sold it on April 15, year 2
for fair market value. When does Individual B's holding period begin? - ✔✔January 6,
year 1
✔✔Define holding period - ✔✔The holding period is the length of time you own property
before you sell it. If you hold property for a year or less, short-term capital gain or loss
rules apply. If you hold property for more than a year, long-term capital gain or loss
rules apply.
✔✔Which mortgage interest expense is a reduction for adjusted gross income? -
✔✔Rental Home
, ✔✔What is a role of deductions from adjusted gross income, excluding the qualified
business income deduction? - ✔✔It allows deduction of medical expenses.
✔✔What is deductible as an investment expense? - ✔✔Interest on a loan to purchase
land for an investment
✔✔Which item is deductible as a business expense if a doctor invests personal money
in various properties? - ✔✔Property taxes paid on a medical office
✔✔A taxpayer runs an automotive repair business in a building he owns. The income
and expenses are reported on Form 1040, Schedule C. There was no section 179
election made. Which action represents a deductible business expense for the current
tax year, and is therefore not subject to capitalization and depreciation? - ✔✔Repairing
a leak in the roof of the building
✔✔Which item is a deductible business expense? - ✔✔Purchase of a 12-month liability
insurance policy
✔✔A small-business owner contracts a painting company to paint her building. The
small-business owner gives the painting company a $2,000 down payment against the
total contract price of $10,000. The painting company starts the job in November of year
1 and completes the job in January of year 2. How will the small-business owner deduct
this expense, given that she is a cash method taxpayer? - ✔✔Year 1: $2,000, year 2:
$8,000
✔✔In September of year 1, Jason agreed to a contract in which he agreed to redo the
floors in an office building and be paid $15,000 for the job. The owner of the office
building gave Jason the first $5,000 payment toward the contract on the day the
contract was signed. Jason started and completed the work in November of year 1.
Upon completion of the project, Jason's bookkeeper mailed an invoice to the building
owner for the balance owed, with a due date of February 15th of year 2. Jason received
payment in full from the building owner in January of year 2. Jason uses the accrual
basis method of accounting for both financial and tax reporting purposes. Which
amounts should Jason report as income from this job when filing taxes in year 1 and
year 2? - ✔✔$15,000 in year 1, and $0 in year 2
✔✔A 33-year-old commercial airline pilot is trying to decide whether to claim a standard
tax deduction or itemize their deductions for 2021. The taxpayer calculates $11,500 of
itemized deductions. This individual is single with no children. Which deduction should
this individual claim? - ✔✔A $12,550 standard deduction
✔✔A 50-year old individual is calculating his deductions for a given year. The individual
examines his records and finds that in the last calendar year he donated $500 to
