INCOME TAX PLANNING PRACTICE EXAM UPDATED
QUESTIONS AND ANSWERS
Gifts of appreciated property (disregarding any adjustment for gift tax paid by the donor) have which of
the following characteristics:
A.Retains the donor's basis.
B.Basis equals the FMV at the time of gift.
C.May have more than one basis.
D.Has no basis, and all proceeds will be taxable upon sale. - CORRECT ANSWER✅✅A.
Robin was given a painting in the current year. At the time of the gift, the painting had a fair market
value of $50,000, and its adjusted basis to the donor was $8,000. The donor and his spouse paid a tax of
$4,000 on the taxable gift of $50,000. What is Robin's basis for gain?
A.$8,000
B. $11,360
C. $12,000
D. $20,500 - CORRECT ANSWER✅✅B.
Which of the following holding periods would qualify for long-term capital gain if the property were sold
today, July 1, this year, for a profit?
A. Printing press purchased August 3, last year
B. Classic Atari video game purchased September 8, last year
C. Warhol painting purchased July 1, last year
D. A first edition copy of The Wizard Oz purchased on June 1, last year - CORRECT ANSWER✅✅D. This
answer is obvious, but in other questions it's useful to know that LT holding period is 1yr and a day
Katarina owns depreciable residential rental real estate which has accumulated depreciation (all from
straight-line) of $55,000. If Kari sold the property, she would have a $23,000 gain. The initial
characterization of the gain would be:
A. Section 1250 gain
, B. Section 1231 gain
C. Section 1239 gain
D. Section 179 gain - CORRECT ANSWER✅✅B. 1250 only applicable when recapturing accelerated
depreciation. Realty with only SL depreciation subject to 1231 OI gain taxation
"1231 asset subject to 1250 recapture"
Which of the following would be considered alimony that could be deducted for the payor?
A. Alfred's monthly payments of $10,000 to Martha while their son is under 18, based on their 2016
divorce.
B. Constance's monthly payments of $5,000 to Havier based on their January 5, 2022 divorce.
C. Frank's monthly payment to Brenda of $1,000 towards home expenses while he lives with her until he
is able to find a place of his own following their December 2021 divorce.
D. Angela's monthly payment to Rinaldo of $2,000 for 15 years, or his death if earlier, based on their July
2017 divorce decree. - CORRECT ANSWER✅✅D. Answer is not A because alimony can't be tied to a
child or contingent on age. Not B cause after Dec 2018. Not C cause after Dec 2018 and alimony can't be
paid while living together. D because specifies that interest would terminate at his death
Roberta, a senior at City University, receives free room and board as a resident advisor at the university
dormitory. This type of job requires residence on site. The regular housing contract is $1,400 a year
total, $800 for lodging and $600 for meals in the dormitory. Roberta is required to live in the dorm but
not to eat there. In addition, Roberta's GPA is high enough that she receives a scholarship for half of her
tuition, the FMV of which is $20,000. What is Roberta's gross income from this employment?
A. $0, the entire value of the scholarship and the contract is excluded, assuming the meals are provided
for the convenience of the employer.
B. $600, the meal contract must be included in gross income.
C. $1,400, the entire value of the contract.
D. $21,400 is fully taxable. - CORRECT ANSWER✅✅A. Reason I mention this is cause if scholarships are
used for education, they are completely nontaxable
Jaylyne is single, had gross income of $80,000, and incurred the following expenses:
Charitable contribution - $1,500
Loss on small kitchen fire not reimbursed by insurance - $3,000
Taxes and interest on home - $9,000
QUESTIONS AND ANSWERS
Gifts of appreciated property (disregarding any adjustment for gift tax paid by the donor) have which of
the following characteristics:
A.Retains the donor's basis.
B.Basis equals the FMV at the time of gift.
C.May have more than one basis.
D.Has no basis, and all proceeds will be taxable upon sale. - CORRECT ANSWER✅✅A.
Robin was given a painting in the current year. At the time of the gift, the painting had a fair market
value of $50,000, and its adjusted basis to the donor was $8,000. The donor and his spouse paid a tax of
$4,000 on the taxable gift of $50,000. What is Robin's basis for gain?
A.$8,000
B. $11,360
C. $12,000
D. $20,500 - CORRECT ANSWER✅✅B.
Which of the following holding periods would qualify for long-term capital gain if the property were sold
today, July 1, this year, for a profit?
A. Printing press purchased August 3, last year
B. Classic Atari video game purchased September 8, last year
C. Warhol painting purchased July 1, last year
D. A first edition copy of The Wizard Oz purchased on June 1, last year - CORRECT ANSWER✅✅D. This
answer is obvious, but in other questions it's useful to know that LT holding period is 1yr and a day
Katarina owns depreciable residential rental real estate which has accumulated depreciation (all from
straight-line) of $55,000. If Kari sold the property, she would have a $23,000 gain. The initial
characterization of the gain would be:
A. Section 1250 gain
, B. Section 1231 gain
C. Section 1239 gain
D. Section 179 gain - CORRECT ANSWER✅✅B. 1250 only applicable when recapturing accelerated
depreciation. Realty with only SL depreciation subject to 1231 OI gain taxation
"1231 asset subject to 1250 recapture"
Which of the following would be considered alimony that could be deducted for the payor?
A. Alfred's monthly payments of $10,000 to Martha while their son is under 18, based on their 2016
divorce.
B. Constance's monthly payments of $5,000 to Havier based on their January 5, 2022 divorce.
C. Frank's monthly payment to Brenda of $1,000 towards home expenses while he lives with her until he
is able to find a place of his own following their December 2021 divorce.
D. Angela's monthly payment to Rinaldo of $2,000 for 15 years, or his death if earlier, based on their July
2017 divorce decree. - CORRECT ANSWER✅✅D. Answer is not A because alimony can't be tied to a
child or contingent on age. Not B cause after Dec 2018. Not C cause after Dec 2018 and alimony can't be
paid while living together. D because specifies that interest would terminate at his death
Roberta, a senior at City University, receives free room and board as a resident advisor at the university
dormitory. This type of job requires residence on site. The regular housing contract is $1,400 a year
total, $800 for lodging and $600 for meals in the dormitory. Roberta is required to live in the dorm but
not to eat there. In addition, Roberta's GPA is high enough that she receives a scholarship for half of her
tuition, the FMV of which is $20,000. What is Roberta's gross income from this employment?
A. $0, the entire value of the scholarship and the contract is excluded, assuming the meals are provided
for the convenience of the employer.
B. $600, the meal contract must be included in gross income.
C. $1,400, the entire value of the contract.
D. $21,400 is fully taxable. - CORRECT ANSWER✅✅A. Reason I mention this is cause if scholarships are
used for education, they are completely nontaxable
Jaylyne is single, had gross income of $80,000, and incurred the following expenses:
Charitable contribution - $1,500
Loss on small kitchen fire not reimbursed by insurance - $3,000
Taxes and interest on home - $9,000
