H&R Block Income Tax Course UPDATED
ACTUAL Exam Questions and CORRECT
Answers
Can the 1040X be e-filed? - CORRECT ANSWER - No.
Household Employee - CORRECT ANSWER - An individual who performs nonbusiness
services in a taxpayer's home.
Active Income and Losses - CORRECT ANSWER - Those for which a taxpayer performs
services.
Partnership - CORRECT ANSWER - A form of business in which two or more persons
join their money and skills in conducting the business as co-owners.
Passive Income and Losses - CORRECT ANSWER - Those from business activities in
which the taxpayer does not materially participate, and all rental activities.
Portfolio Income and Losses - CORRECT ANSWER - Those from such sources as
dividends, interest, capital gains and losses, and royalties.
Rental Income - CORRECT ANSWER - Income received by the taxpayer for allowing
another person's use of the taxpayer's property.
Royalty - CORRECT ANSWER - (1) A payment received for the right to exploit a
taxpayer's ownership of natural resources or a taxpayer's literary, musical, or artistic creation. (2)
An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in
value, of the total production from the property, free of any expenses of development and
operation.
,S Corporation - CORRECT ANSWER - A qualified small business corporation that has
elected special tax treatment under subchapter S of the Internal Revenue Code. S corporations
pass income, losses, and deductions through to shareholders to report on their individual returns.
Trust - CORRECT ANSWER - A tax entity that distributes all or part of its income to
beneficiaries as instructed by the trust agreement.
Requirements for a Real Estate Professional - CORRECT ANSWER - 1. More than half of
the personal services performed by the taxpayer in all trades or businesses during the tax year
were performed in real property trades or businesses in which the taxpayer materially
participated.
2. The taxpayer performed more than 750 hours of services during the year in real property
trades or businesses in which the taxpayer materially participated.
Trade or Business Activities - CORRECT ANSWER - Any activity that: Involves the
conduct of a trade or business; is conducted in anticipation of starting a trade or business;
Involves research or experimental expenditures that are deductible under IRS Code 174.
Nonpassive Income - CORRECT ANSWER - Income derived from activities that are not
passive.
Types of Nonpassive Income - CORRECT ANSWER - Portfolio income; personal service
income; other income.
Portfolio Income - CORRECT ANSWER - Includes interest, dividends, annuities, and
royalties not derived in the ordinary course of business.
Personal Service Income - CORRECT ANSWER - Salaries, wages, commissions, self-
employment income from trade or business in which the taxpayer materially participates,
deferred compensation, taxable social security and other retirement benefits, and payments from
partnerships to partners for personal services.
Rent - CORRECT ANSWER - Income received for the use of property.
,Is rent earned or unearned income? - CORRECT ANSWER - Unearned.
Schedule E - CORRECT ANSWER - Supplemental Income and Loss
Deductible Maintenance and Repairs - CORRECT ANSWER - Those that do not
appreciably add to the value or useful life of the property.
Is the value of the owner's labor deductible when it comes to rental property? - CORRECT
ANSWER - No.
Rental Property Depreciable Basis - CORRECT ANSWER - Basis MINUS land value
TIMES the rental use percentage.
Vacation home - CORRECT ANSWER - A dwelling unit and may be a house, apartment,
condominium, mobile home, boat, or any other property that provides normal living
accomodations.
Used as a Residence - CORRECT ANSWER - A dwelling unit is used for personal
purposes during the year for whichever is greater: more than 14 days; more than 10% of the days
the house is rented at fair rental value.
Royalty - CORRECT ANSWER - Payments received for the right to extract natural
resources from the taxpayer's property or to use a taxpayer's literary, musical, or artistic creation.
Economic Interest - CORRECT ANSWER - One acquired by investment, the return on
which is dependent upon the extraction of the natural deposit or cutting of the timber.
Two Methods of Computing Depletion - CORRECT ANSWER - Cost and Percentage
, What tax form must estates and trusts file? - CORRECT ANSWER - Form 1041
What tax form must partnerships file? - CORRECT ANSWER - Form 1065
Do partnerships pay income taxes? - CORRECT ANSWER - No.
General Partner - CORRECT ANSWER - One who is personally responsible for
partnership debts.
Limited Partner - CORRECT ANSWER - A partner in a partnership organized under a
state's limited partnership law, whose personal liability for partnership debts is limited to their
investment in the partnership.
Limited Liability Company - CORRECT ANSWER - A business entity formed under state
law by filing articles of organization as a limited liability company.
Passive Activity - CORRECT ANSWER - A business activity in which the taxpayer does
not materially participate.
Form 8582 - CORRECT ANSWER - Passive Activity Loss Limitations
Annuity - CORRECT ANSWER - A series of payments under a contract made at regular
intervals over a period of more than one year.
Beneficiary - CORRECT ANSWER - The owner or recipient of funds in an account, such
as an IRA, or from an insurance policy or will.
Contribution - CORRECT ANSWER - When a person puts money into a retirement plan.
ACTUAL Exam Questions and CORRECT
Answers
Can the 1040X be e-filed? - CORRECT ANSWER - No.
Household Employee - CORRECT ANSWER - An individual who performs nonbusiness
services in a taxpayer's home.
Active Income and Losses - CORRECT ANSWER - Those for which a taxpayer performs
services.
Partnership - CORRECT ANSWER - A form of business in which two or more persons
join their money and skills in conducting the business as co-owners.
Passive Income and Losses - CORRECT ANSWER - Those from business activities in
which the taxpayer does not materially participate, and all rental activities.
Portfolio Income and Losses - CORRECT ANSWER - Those from such sources as
dividends, interest, capital gains and losses, and royalties.
Rental Income - CORRECT ANSWER - Income received by the taxpayer for allowing
another person's use of the taxpayer's property.
Royalty - CORRECT ANSWER - (1) A payment received for the right to exploit a
taxpayer's ownership of natural resources or a taxpayer's literary, musical, or artistic creation. (2)
An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in
value, of the total production from the property, free of any expenses of development and
operation.
,S Corporation - CORRECT ANSWER - A qualified small business corporation that has
elected special tax treatment under subchapter S of the Internal Revenue Code. S corporations
pass income, losses, and deductions through to shareholders to report on their individual returns.
Trust - CORRECT ANSWER - A tax entity that distributes all or part of its income to
beneficiaries as instructed by the trust agreement.
Requirements for a Real Estate Professional - CORRECT ANSWER - 1. More than half of
the personal services performed by the taxpayer in all trades or businesses during the tax year
were performed in real property trades or businesses in which the taxpayer materially
participated.
2. The taxpayer performed more than 750 hours of services during the year in real property
trades or businesses in which the taxpayer materially participated.
Trade or Business Activities - CORRECT ANSWER - Any activity that: Involves the
conduct of a trade or business; is conducted in anticipation of starting a trade or business;
Involves research or experimental expenditures that are deductible under IRS Code 174.
Nonpassive Income - CORRECT ANSWER - Income derived from activities that are not
passive.
Types of Nonpassive Income - CORRECT ANSWER - Portfolio income; personal service
income; other income.
Portfolio Income - CORRECT ANSWER - Includes interest, dividends, annuities, and
royalties not derived in the ordinary course of business.
Personal Service Income - CORRECT ANSWER - Salaries, wages, commissions, self-
employment income from trade or business in which the taxpayer materially participates,
deferred compensation, taxable social security and other retirement benefits, and payments from
partnerships to partners for personal services.
Rent - CORRECT ANSWER - Income received for the use of property.
,Is rent earned or unearned income? - CORRECT ANSWER - Unearned.
Schedule E - CORRECT ANSWER - Supplemental Income and Loss
Deductible Maintenance and Repairs - CORRECT ANSWER - Those that do not
appreciably add to the value or useful life of the property.
Is the value of the owner's labor deductible when it comes to rental property? - CORRECT
ANSWER - No.
Rental Property Depreciable Basis - CORRECT ANSWER - Basis MINUS land value
TIMES the rental use percentage.
Vacation home - CORRECT ANSWER - A dwelling unit and may be a house, apartment,
condominium, mobile home, boat, or any other property that provides normal living
accomodations.
Used as a Residence - CORRECT ANSWER - A dwelling unit is used for personal
purposes during the year for whichever is greater: more than 14 days; more than 10% of the days
the house is rented at fair rental value.
Royalty - CORRECT ANSWER - Payments received for the right to extract natural
resources from the taxpayer's property or to use a taxpayer's literary, musical, or artistic creation.
Economic Interest - CORRECT ANSWER - One acquired by investment, the return on
which is dependent upon the extraction of the natural deposit or cutting of the timber.
Two Methods of Computing Depletion - CORRECT ANSWER - Cost and Percentage
, What tax form must estates and trusts file? - CORRECT ANSWER - Form 1041
What tax form must partnerships file? - CORRECT ANSWER - Form 1065
Do partnerships pay income taxes? - CORRECT ANSWER - No.
General Partner - CORRECT ANSWER - One who is personally responsible for
partnership debts.
Limited Partner - CORRECT ANSWER - A partner in a partnership organized under a
state's limited partnership law, whose personal liability for partnership debts is limited to their
investment in the partnership.
Limited Liability Company - CORRECT ANSWER - A business entity formed under state
law by filing articles of organization as a limited liability company.
Passive Activity - CORRECT ANSWER - A business activity in which the taxpayer does
not materially participate.
Form 8582 - CORRECT ANSWER - Passive Activity Loss Limitations
Annuity - CORRECT ANSWER - A series of payments under a contract made at regular
intervals over a period of more than one year.
Beneficiary - CORRECT ANSWER - The owner or recipient of funds in an account, such
as an IRA, or from an insurance policy or will.
Contribution - CORRECT ANSWER - When a person puts money into a retirement plan.
