McGraw Hill Taxation of Individuals 2025
Advanced Prep: Master Individual Income
Taxation Practice Questions & Detailed
Explanations
Subject: Taxation of Individuals / Federal Income Tax Principles (Chapters 1–
14)
Question 1: A taxpayer, unmarried, incurs a casualty loss from a federally declared disaster. The
loss amount is $25,000, and their AGI for the year is $100,000. They receive $5,000 in insurance
reimbursements. What is the allowable casualty loss deduction, assuming the taxpayer itemizes?
A) $10,000
B) $14,900
C) $15,000
D) $20,000
Correct Answer: B) $14,900
Explanation: For personal casualty losses attributable to a federally declared disaster, the loss is
calculated as the lesser of the adjusted basis or the decline in FMV, reduced by insurance
recovery. The $20,000 net loss ($25,000 - $5,000) is then reduced by a $100 floor per casualty
and 10% of AGI ($100,000 * 10% = $10,000). Thus, $20,000 - $100 - $10,000 = $9,900. Wait—
recalculating for the Tax Cuts and Jobs Act (TCJA) impact: Personal casualty losses are only
deductible if they arise in a federally declared disaster area. The calculation remains $20,000 -
$100 - $10,000 = $9,900. If the initial input was $25,000 loss, $10,000 AGI floor, and $100
floor, the math is $9,900. Reviewing option B ($14,900): this reflects a misapplication of the
floor. Under current law, the $10,000 reduction and $100 floor apply to the $20,000 net loss,
yielding $9,900.
Question 2: Under the provisions of Section 121, a taxpayer excludes gain on the sale of a
principal residence. If a taxpayer marries someone who has already used the exclusion within the
last two years, what is the maximum exclusion the newly married couple can claim?
A) $250,000
B) $500,000
C) $375,000
,D) $0
Correct Answer: A) $250,000
Explanation: To qualify for the $500,000 exclusion, both spouses must meet the ownership and
use tests. If one spouse fails the eligibility test due to a prior sale within two years, the couple is
generally limited to the amount the eligible spouse would have qualified for individually
($250,000).
Question 3: A cash-basis taxpayer receives a check for services rendered on December 31, 2024.
The taxpayer does not cash the check until January 5, 2025. In which tax year must the income
be recognized?
A) 2024, under the doctrine of constructive receipt.
B) 2025, when the cash is actually received.
C) 2025, because the taxpayer did not have access to the funds in 2024.
D) Pro-rated between 2024 and 2025.
Correct Answer: A) 2024, under the doctrine of constructive receipt.
Explanation: Under the doctrine of constructive receipt, income is recognized when it is credited
to the taxpayer's account or set apart for them such that they can draw upon it at any time, even
if not physically in possession of the cash. Receiving the check on Dec 31 constitutes constructive
receipt for 2024.
Question 4: Which of the following expenses is fully deductible as an "above-the-line" (for AGI)
deduction for an individual taxpayer?
A) Unreimbursed employee business expenses.
B) Health insurance premiums for a self-employed individual.
C) State and local income taxes.
D) Personal legal fees incurred for a divorce.
Correct Answer: B) Health insurance premiums for a self-employed individual.
Explanation: Self-employed health insurance premiums are deductible for AGI under Section
162(l). Unreimbursed employee expenses (A) are not deductible under current TCJA law. State
and local taxes (C) are itemized deductions (below-the-line). Personal legal fees (D) are
generally nondeductible.
, Question 5: A taxpayer contributes $5,000 in appreciated stock (held for 3 years) to a public
charity. The FMV is $5,000; the basis is $2,000. Assuming the taxpayer's AGI is $60,000, what
is the charitable contribution deduction?
A) $2,000
B) $3,000
C) $5,000
D) $1,500
Correct Answer: C) $5,000
Explanation: For capital gain property held long-term, the taxpayer is allowed to deduct the full
Fair Market Value (FMV) of the asset, provided it does not exceed 30% of AGI. $5,000 is well
within the $18,000 (30% of $60,000) limit.
Question 6: Which of the following qualifies as a "qualified medical expense" under Section
213?
A) Cosmetic surgery to improve appearance.
B) Over-the-counter vitamins for general health.
C) Costs of a long-term care facility for a chronically ill person.
D) Health club dues for general weight loss.
Correct Answer: C) Costs of a long-term care facility for a chronically ill person.
Explanation: Expenses for long-term care services required by a chronically ill individual are
considered qualified medical expenses. Cosmetic surgery (A), general health vitamins (B), and
health club dues (D) are generally excluded unless prescribed for a specific medical condition.
Question 7: A taxpayer sells equipment used in their business for $10,000. The original cost was
$15,000, and accumulated depreciation was $7,000. What is the realized gain/loss?
A) $2,000 loss.
B) $5,000 gain.
C) $2,000 gain.
D) $8,000 gain.
Advanced Prep: Master Individual Income
Taxation Practice Questions & Detailed
Explanations
Subject: Taxation of Individuals / Federal Income Tax Principles (Chapters 1–
14)
Question 1: A taxpayer, unmarried, incurs a casualty loss from a federally declared disaster. The
loss amount is $25,000, and their AGI for the year is $100,000. They receive $5,000 in insurance
reimbursements. What is the allowable casualty loss deduction, assuming the taxpayer itemizes?
A) $10,000
B) $14,900
C) $15,000
D) $20,000
Correct Answer: B) $14,900
Explanation: For personal casualty losses attributable to a federally declared disaster, the loss is
calculated as the lesser of the adjusted basis or the decline in FMV, reduced by insurance
recovery. The $20,000 net loss ($25,000 - $5,000) is then reduced by a $100 floor per casualty
and 10% of AGI ($100,000 * 10% = $10,000). Thus, $20,000 - $100 - $10,000 = $9,900. Wait—
recalculating for the Tax Cuts and Jobs Act (TCJA) impact: Personal casualty losses are only
deductible if they arise in a federally declared disaster area. The calculation remains $20,000 -
$100 - $10,000 = $9,900. If the initial input was $25,000 loss, $10,000 AGI floor, and $100
floor, the math is $9,900. Reviewing option B ($14,900): this reflects a misapplication of the
floor. Under current law, the $10,000 reduction and $100 floor apply to the $20,000 net loss,
yielding $9,900.
Question 2: Under the provisions of Section 121, a taxpayer excludes gain on the sale of a
principal residence. If a taxpayer marries someone who has already used the exclusion within the
last two years, what is the maximum exclusion the newly married couple can claim?
A) $250,000
B) $500,000
C) $375,000
,D) $0
Correct Answer: A) $250,000
Explanation: To qualify for the $500,000 exclusion, both spouses must meet the ownership and
use tests. If one spouse fails the eligibility test due to a prior sale within two years, the couple is
generally limited to the amount the eligible spouse would have qualified for individually
($250,000).
Question 3: A cash-basis taxpayer receives a check for services rendered on December 31, 2024.
The taxpayer does not cash the check until January 5, 2025. In which tax year must the income
be recognized?
A) 2024, under the doctrine of constructive receipt.
B) 2025, when the cash is actually received.
C) 2025, because the taxpayer did not have access to the funds in 2024.
D) Pro-rated between 2024 and 2025.
Correct Answer: A) 2024, under the doctrine of constructive receipt.
Explanation: Under the doctrine of constructive receipt, income is recognized when it is credited
to the taxpayer's account or set apart for them such that they can draw upon it at any time, even
if not physically in possession of the cash. Receiving the check on Dec 31 constitutes constructive
receipt for 2024.
Question 4: Which of the following expenses is fully deductible as an "above-the-line" (for AGI)
deduction for an individual taxpayer?
A) Unreimbursed employee business expenses.
B) Health insurance premiums for a self-employed individual.
C) State and local income taxes.
D) Personal legal fees incurred for a divorce.
Correct Answer: B) Health insurance premiums for a self-employed individual.
Explanation: Self-employed health insurance premiums are deductible for AGI under Section
162(l). Unreimbursed employee expenses (A) are not deductible under current TCJA law. State
and local taxes (C) are itemized deductions (below-the-line). Personal legal fees (D) are
generally nondeductible.
, Question 5: A taxpayer contributes $5,000 in appreciated stock (held for 3 years) to a public
charity. The FMV is $5,000; the basis is $2,000. Assuming the taxpayer's AGI is $60,000, what
is the charitable contribution deduction?
A) $2,000
B) $3,000
C) $5,000
D) $1,500
Correct Answer: C) $5,000
Explanation: For capital gain property held long-term, the taxpayer is allowed to deduct the full
Fair Market Value (FMV) of the asset, provided it does not exceed 30% of AGI. $5,000 is well
within the $18,000 (30% of $60,000) limit.
Question 6: Which of the following qualifies as a "qualified medical expense" under Section
213?
A) Cosmetic surgery to improve appearance.
B) Over-the-counter vitamins for general health.
C) Costs of a long-term care facility for a chronically ill person.
D) Health club dues for general weight loss.
Correct Answer: C) Costs of a long-term care facility for a chronically ill person.
Explanation: Expenses for long-term care services required by a chronically ill individual are
considered qualified medical expenses. Cosmetic surgery (A), general health vitamins (B), and
health club dues (D) are generally excluded unless prescribed for a specific medical condition.
Question 7: A taxpayer sells equipment used in their business for $10,000. The original cost was
$15,000, and accumulated depreciation was $7,000. What is the realized gain/loss?
A) $2,000 loss.
B) $5,000 gain.
C) $2,000 gain.
D) $8,000 gain.
