TAX CREDIT SPECIALIST TEST PAPER 2025/2026
QUESTIONS WITH ANSWERS TAGGED A+
✔✔Taxpayers who make after-tax contributions to a qualified employer plan recover
their investment (cost) when they begin to take periodic payments. How is the after-tax
contribution recovered?
A) Up front.
B) Last.
C) A portion is recovered each year, until fully recovered.
D) A portion is recovered each year, for the first ten years. - ✔✔C) A portion is
recovered each year, until fully recovered.
✔✔Form 8606 is used for all of the following purposes EXCEPT:
A) To claim an exception to the penalty on an early distribution from a retirement plan.
B) To calculate the taxable portion of a traditional IRA distribution.
C) To determine the taxable amount of a nonqualified distribution from a Roth IRA.
D) To determine the taxable amount of a traditional IRA converted to a Roth IRA. -
✔✔A) To claim an exception to the penalty on an early distribution from a retirement
plan.
✔✔Which of the following is an example of passive income?
A) Portfolio income, including interest, dividends, annuities, and royalties.
B) Income from real estate ventures for a non-real estate professional.
C) Winnings from gambling.
D) State and local refunds. - ✔✔NOT A) Portfolio income, including interest, dividends,
annuities, and royalties.
✔✔Aaron Jennings, a partner in an engineering firm, is guaranteed a payment of
$50,000 each year without regard to the firm's profits or losses. Assuming the payment
is correctly reported to him on a Schedule K-1, how should Aaron report this income on
his tax return?
A) Passive income, reported on Schedule E.
B) Nonpassive income, reported on Schedule E.
C) Wages, salaries, tips, etc., reported directly on Form 1040.
D) Other income, reported directly on Form 1040. - ✔✔B) Nonpassive income, reported
on Schedule E.
✔✔Which of the following is NOT a potential limitation on partnership losses that can be
deducted on the partner's personal income tax return?
A) The partner's share of Section 263(A) preproductive expenses.
B) The partner's share of the entity's loss that exceeds the adjusted basis of the
partner's interest in the entity at year end.
C) Amounts for which the partner is not at risk when a loss occurs from an activity
carried on as a trade or business by the partnership entity.
,D) For an individual partner, a loss related to rental activities. - ✔✔A) The partner's
share of Section 263(A) preproductive expenses.
✔✔Portfolio income includes all of the following EXCEPT:
A) Royalties not derived in the ordinary course of a trade or business.
B) Dividends from accumulated earnings and profits of an S corporation.
C) Guaranteed payments received by a partner.
D) Interest. - ✔✔C) Guaranteed payments received by a partner.
✔✔Which step must be completed first to determine the allowable losses when a
taxpayer has multiple passive activities?
A) Figure the allowable loss from other passive activities.
B) Figure the allowable loss from rental real estate activities with active participation.
C) Figure the income or loss from each separate activity in the usual manner.
D) Figure the allowable loss from rental real estate activities with significant
participation. - ✔✔C) Figure the income or loss from each separate activity in the usual
manner.
✔✔A typical example of a passive activity is an interest in a:
A) Limited partnership in which the partner does not participate in the business
activities.
B) Limited partnership in which the partner participates in the business activities.
C) Limited partnership in which the general partner participates in the business
activities.
D) General partnership in which the corporate partner participates in the business
activities. - ✔✔NOT B) Limited partnership in which the partner participates in the
business activities.
✔✔Material participation standards for shareholders of Subchapter S corporations, who
are individuals, include those who during the tax year:
A) Participated in the activity for more than 80 hours during the tax year.
B) Constituted at least one-half of all the participation in the activity of all individuals
(including non-owners).
C) Participated in all significant participation activities (including activities outside the
corporation for more than 200 hours).
D) Participated in business activities for more than 100 hours during the tax year and
the participation was not less than the activity of any other individual's during the tax
year. - ✔✔D) Participated in business activities for more than 100 hours during the tax
year and the participation was not less than the activity of any other individual's during
the tax year.
✔✔Ben bought a local artist's painting for $2,100. Several years later, Ben sold it for
$2,700. The year Ben sold the painting, he was in the 15% tax bracket. Ben's gain on
the picture will be taxed at __________.
A) 15%
, B) 25%
C) 28%
D) 33% - ✔✔A) 15%
✔✔The basis of property inherited from a decedent is generally __________.
A) The purchase price of the property.
B) The fair market value (FMV) of the property on the date of death or the alternative
valuation date.
C) The higher of the decedent's adjusted basis or the fair market value (FMV) on the
date of death or the alternative valuation date.
D) The adjusted basis of the decedent on the date of death or the alternative valuation
date. - ✔✔B) The fair market value (FMV) of the property on the date of death or
alternative valuation date.
✔✔Personal property that has no intrinsic value is called:
A) Valued personal-use property.
B) Intangible property.
C) Tangible property.
D) Worthless property. - ✔✔B) Intangible property.
✔✔Property such as land, buildings, and their structural components is called:
A) Real property.
B) Residential property.
C) Nonresidential property.
D) Personal property. - ✔✔A) Real property.
✔✔Teresa purchased a necklace for $100 in 1965. In 2015, Teresa gave the necklace
to her granddaughter, Lindsey. At the time of the gift, the necklace had an appraised
value of $850. In 2017, Lindsey sold the necklace for $1,200. What is the amount and
character of Lindsey's gain from this sale?
A) $350 ordinary gain.
B) $350 long-term capital gain.
C) $1,100 ordinary gain.
D) $1,100 long-term capital gain. - ✔✔D) $1,100 long-term capital gain.
✔✔Listed property includes all of the following EXCEPT:
A) Computers not used exclusively in a regular place of business.
B) Furniture not used exclusively in a regular place of business.
C) Equipment used exclusively in a regular place of business.
D) Computers used exclusively in a regular place of business. - ✔✔NOT D) Computers
used exclusively in a regular place of business.
NOT A) Computers not used exclusively in a regular place of business.
QUESTIONS WITH ANSWERS TAGGED A+
✔✔Taxpayers who make after-tax contributions to a qualified employer plan recover
their investment (cost) when they begin to take periodic payments. How is the after-tax
contribution recovered?
A) Up front.
B) Last.
C) A portion is recovered each year, until fully recovered.
D) A portion is recovered each year, for the first ten years. - ✔✔C) A portion is
recovered each year, until fully recovered.
✔✔Form 8606 is used for all of the following purposes EXCEPT:
A) To claim an exception to the penalty on an early distribution from a retirement plan.
B) To calculate the taxable portion of a traditional IRA distribution.
C) To determine the taxable amount of a nonqualified distribution from a Roth IRA.
D) To determine the taxable amount of a traditional IRA converted to a Roth IRA. -
✔✔A) To claim an exception to the penalty on an early distribution from a retirement
plan.
✔✔Which of the following is an example of passive income?
A) Portfolio income, including interest, dividends, annuities, and royalties.
B) Income from real estate ventures for a non-real estate professional.
C) Winnings from gambling.
D) State and local refunds. - ✔✔NOT A) Portfolio income, including interest, dividends,
annuities, and royalties.
✔✔Aaron Jennings, a partner in an engineering firm, is guaranteed a payment of
$50,000 each year without regard to the firm's profits or losses. Assuming the payment
is correctly reported to him on a Schedule K-1, how should Aaron report this income on
his tax return?
A) Passive income, reported on Schedule E.
B) Nonpassive income, reported on Schedule E.
C) Wages, salaries, tips, etc., reported directly on Form 1040.
D) Other income, reported directly on Form 1040. - ✔✔B) Nonpassive income, reported
on Schedule E.
✔✔Which of the following is NOT a potential limitation on partnership losses that can be
deducted on the partner's personal income tax return?
A) The partner's share of Section 263(A) preproductive expenses.
B) The partner's share of the entity's loss that exceeds the adjusted basis of the
partner's interest in the entity at year end.
C) Amounts for which the partner is not at risk when a loss occurs from an activity
carried on as a trade or business by the partnership entity.
,D) For an individual partner, a loss related to rental activities. - ✔✔A) The partner's
share of Section 263(A) preproductive expenses.
✔✔Portfolio income includes all of the following EXCEPT:
A) Royalties not derived in the ordinary course of a trade or business.
B) Dividends from accumulated earnings and profits of an S corporation.
C) Guaranteed payments received by a partner.
D) Interest. - ✔✔C) Guaranteed payments received by a partner.
✔✔Which step must be completed first to determine the allowable losses when a
taxpayer has multiple passive activities?
A) Figure the allowable loss from other passive activities.
B) Figure the allowable loss from rental real estate activities with active participation.
C) Figure the income or loss from each separate activity in the usual manner.
D) Figure the allowable loss from rental real estate activities with significant
participation. - ✔✔C) Figure the income or loss from each separate activity in the usual
manner.
✔✔A typical example of a passive activity is an interest in a:
A) Limited partnership in which the partner does not participate in the business
activities.
B) Limited partnership in which the partner participates in the business activities.
C) Limited partnership in which the general partner participates in the business
activities.
D) General partnership in which the corporate partner participates in the business
activities. - ✔✔NOT B) Limited partnership in which the partner participates in the
business activities.
✔✔Material participation standards for shareholders of Subchapter S corporations, who
are individuals, include those who during the tax year:
A) Participated in the activity for more than 80 hours during the tax year.
B) Constituted at least one-half of all the participation in the activity of all individuals
(including non-owners).
C) Participated in all significant participation activities (including activities outside the
corporation for more than 200 hours).
D) Participated in business activities for more than 100 hours during the tax year and
the participation was not less than the activity of any other individual's during the tax
year. - ✔✔D) Participated in business activities for more than 100 hours during the tax
year and the participation was not less than the activity of any other individual's during
the tax year.
✔✔Ben bought a local artist's painting for $2,100. Several years later, Ben sold it for
$2,700. The year Ben sold the painting, he was in the 15% tax bracket. Ben's gain on
the picture will be taxed at __________.
A) 15%
, B) 25%
C) 28%
D) 33% - ✔✔A) 15%
✔✔The basis of property inherited from a decedent is generally __________.
A) The purchase price of the property.
B) The fair market value (FMV) of the property on the date of death or the alternative
valuation date.
C) The higher of the decedent's adjusted basis or the fair market value (FMV) on the
date of death or the alternative valuation date.
D) The adjusted basis of the decedent on the date of death or the alternative valuation
date. - ✔✔B) The fair market value (FMV) of the property on the date of death or
alternative valuation date.
✔✔Personal property that has no intrinsic value is called:
A) Valued personal-use property.
B) Intangible property.
C) Tangible property.
D) Worthless property. - ✔✔B) Intangible property.
✔✔Property such as land, buildings, and their structural components is called:
A) Real property.
B) Residential property.
C) Nonresidential property.
D) Personal property. - ✔✔A) Real property.
✔✔Teresa purchased a necklace for $100 in 1965. In 2015, Teresa gave the necklace
to her granddaughter, Lindsey. At the time of the gift, the necklace had an appraised
value of $850. In 2017, Lindsey sold the necklace for $1,200. What is the amount and
character of Lindsey's gain from this sale?
A) $350 ordinary gain.
B) $350 long-term capital gain.
C) $1,100 ordinary gain.
D) $1,100 long-term capital gain. - ✔✔D) $1,100 long-term capital gain.
✔✔Listed property includes all of the following EXCEPT:
A) Computers not used exclusively in a regular place of business.
B) Furniture not used exclusively in a regular place of business.
C) Equipment used exclusively in a regular place of business.
D) Computers used exclusively in a regular place of business. - ✔✔NOT D) Computers
used exclusively in a regular place of business.
NOT A) Computers not used exclusively in a regular place of business.
