AC 371 Exam #2 Questions with
Complete Rationales 2026-2027
Updated.
nonrefundable - Answer The lifetime learning credit is a _________ personal tax credit
Business activities - Answer Profit motivated activities that require a high-level of effort from
the taxpayer
ordinary, necessary, reasonable - Answer 3 requirements for trade or business expenses to be
deductible:
from - Answer Investment interest expense is deducted _______ AGI
for - Answer Self-employed business expenses are deducted _____ AGI
deduct $3,000 for AGI - Answer In the current year, Ellen sold investment stock that she had
owned for five years. The sale generated a loss of $5,000. Assuming she had no other asset sales
during the year, how should Ellen handle the loss for the current tax year purposes?
for - Answer Any expenses or losses from flow-through entities are typically deductible
_______ AGI
the employer portion for AGI - Answer In regards to self-employment tax, what can self-
employed taxpayers deduct?
for - Answer Penalties/fines for early withdrawl of savings are deductible ______ AGI
for - Answer Rent and royalty expenses are deductible _____ AGI
Sch E of 1040 - Answer Where are rental and royalty expenses and revenue reported?
for; $2,500 - Answer interest expenses on qualified education loans are deductible ______ AGI
up to ______ per year
T - Answer T/F: Investment interest expense is limited to investment income
, from - Answer gambling losses up to the amount of winnings are deductible ____ AGI
from - Answer Casualty and theft losses on investment property are deductible _____ AGI
from - Answer the unrecovered cost of a life annuity when the tax payer dies is deductible
_____ AGI
5 years - Answer how long can excess charitable contributions be carried forward?
directly related to business activities, indirectly related to business activities, and subsidizing
specific activities - Answer 3 categories of For AGI deductions:
Form 1040 SCH C - Answer what form are business profits and losses declared on?
Royalties - Answer payments from natural resource extraction activities taking place on the
taxpayer's land
For - Answer rental and royalty expenses are deducted _____ AGI
60 - Answer the overall limitation for charitable contributions of cash is ______% of AGI
50 - Answer the overall limitation for charitable contributions of ordinary gain property other
than cash is _____ of AGI
30 - Answer the overall limitation for charitable contributions of long-term capital gain
property is ____ of AGI
specified service trade or business - Answer a qualified business or trade is any business or
trade other than a ......
specified service trade or business - Answer any trade or business involving the performance
of services in the health, law, consulting, athletics, financial services, brokerage services, or any
trade or business where the principal asset of such trade or business is the reputation or skill of
one or more of its employees or owners, or which involves the performance of services that
consist of investing and investment management trading, or dealing in securities, partnership
interests, or commodities. Architecture and engineering services are specifically excluded from
the definition of specified service trade or business.
at ordinary rates - Answer how is interest from bonds, CDs, and savings accounts taxed?
Complete Rationales 2026-2027
Updated.
nonrefundable - Answer The lifetime learning credit is a _________ personal tax credit
Business activities - Answer Profit motivated activities that require a high-level of effort from
the taxpayer
ordinary, necessary, reasonable - Answer 3 requirements for trade or business expenses to be
deductible:
from - Answer Investment interest expense is deducted _______ AGI
for - Answer Self-employed business expenses are deducted _____ AGI
deduct $3,000 for AGI - Answer In the current year, Ellen sold investment stock that she had
owned for five years. The sale generated a loss of $5,000. Assuming she had no other asset sales
during the year, how should Ellen handle the loss for the current tax year purposes?
for - Answer Any expenses or losses from flow-through entities are typically deductible
_______ AGI
the employer portion for AGI - Answer In regards to self-employment tax, what can self-
employed taxpayers deduct?
for - Answer Penalties/fines for early withdrawl of savings are deductible ______ AGI
for - Answer Rent and royalty expenses are deductible _____ AGI
Sch E of 1040 - Answer Where are rental and royalty expenses and revenue reported?
for; $2,500 - Answer interest expenses on qualified education loans are deductible ______ AGI
up to ______ per year
T - Answer T/F: Investment interest expense is limited to investment income
, from - Answer gambling losses up to the amount of winnings are deductible ____ AGI
from - Answer Casualty and theft losses on investment property are deductible _____ AGI
from - Answer the unrecovered cost of a life annuity when the tax payer dies is deductible
_____ AGI
5 years - Answer how long can excess charitable contributions be carried forward?
directly related to business activities, indirectly related to business activities, and subsidizing
specific activities - Answer 3 categories of For AGI deductions:
Form 1040 SCH C - Answer what form are business profits and losses declared on?
Royalties - Answer payments from natural resource extraction activities taking place on the
taxpayer's land
For - Answer rental and royalty expenses are deducted _____ AGI
60 - Answer the overall limitation for charitable contributions of cash is ______% of AGI
50 - Answer the overall limitation for charitable contributions of ordinary gain property other
than cash is _____ of AGI
30 - Answer the overall limitation for charitable contributions of long-term capital gain
property is ____ of AGI
specified service trade or business - Answer a qualified business or trade is any business or
trade other than a ......
specified service trade or business - Answer any trade or business involving the performance
of services in the health, law, consulting, athletics, financial services, brokerage services, or any
trade or business where the principal asset of such trade or business is the reputation or skill of
one or more of its employees or owners, or which involves the performance of services that
consist of investing and investment management trading, or dealing in securities, partnership
interests, or commodities. Architecture and engineering services are specifically excluded from
the definition of specified service trade or business.
at ordinary rates - Answer how is interest from bonds, CDs, and savings accounts taxed?
