CPA Regulation (REG) : CPA Regulation (REG)
Study concepts, example questions & explanations for CPA Regulation (REG)
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Example Questions
Example Question #15 : Individual Income Tax Exemptions, Credits, & Deductions
How many taxes paid by an individual to a foreign country be treated?
As an itemized deduction subject to a 2% floor
As a nondeductible expense
As a credit against federal income taxes due
As an adjustment to gross income
As a credit against federal income taxes due
A taxpayer may claim a credit against federal income taxes due for foreign income taxes paid to a foreign country or a US possession. There is a limitation on the amount of the credit an individual can obtain.
Example Question #13 : Individual Income Tax Exemptions, Credits, & Deductions
Of the following, which is a valid tax credit in the United States under the IRS?
Earned income credit
Federal service of 2004 credit
Principal home financing credit
Elderly care credit
Earned income credit
Only the Earned income credit is a real credit. The others are made up of credits.
Example Question #71 : Cpa Regulation (Reg)
The credit for prior year AMT liability may be carried:
Forward indefinitely
Forward for a maximum of 15 years
Back three years or forward a maximum of 15 years
Back three years
Forward indefinitely
Like capital losses for individuals, AMT credits may be carried forward indefinitely for individual taxpayers.
Example Question #72 : Cpa Regulation (Reg)
Which of the following is not an adjustment or preference to arrive at alternative minimum taxable income?
Passive activity losses
Deductible state and local taxes
Deductible contributions to individual retirement accounts
Individual taxpayer net operating losses
Deductible contributions to individual retirement accounts
Adjustments and preferences to arrive at AMTI include many items, such as passive activity losses, accelerated depreciation, net operating loss of an individual taxpayer, state and local taxes, the standard deduction, and private activity bond interest income. Deductible contributions to IRAs are treated the same under AMTI as for taxable income.
Example Question #73 : Cpa Regulation (Reg)
West is single, has no dependents, and does not itemize. West provides the following information regarding his current-year’s return:
- Long-term capital gain: $ 15,000
- Percentage depletion in excess of property’s adjusted basis: 9,000
- Dividends from publicly held companies: 10,000
What is the amount of West’s AMT tax preference items?
$19,000
$24,000
$9,000
$34,000
$9,000
Among the options provided, only the percentage depletion in excess of a property’s adjusted basis is included as an AMT tax preference item.
Example Question #1 : Alternative Minimum Tax
The credit for prior year AMT liability may be carried:
Back to the three preceding years or carried forward for a maximum of five years
Back to the three preceding years
Forward indefinitely
Forward for a maximum of five years
Forward indefinitely
AMT paid can be claimed as a credit against other years if the tax was paid on items that increased AMT that year but will reverse in later years. The credit is carried forward indefinitely.
Example Question #5 : Alternative Minimum Tax
Of the following is not an adjustment or preference to arrive at AMTI?
Passive activity losses
Deductible contributions to individual retirement accounts
Deductible state and local taxes
Individual taxpayer net operating losses
Deductible contributions to individual retirement accounts
Deductible contributions to individual retirement accounts are not an adjustment or preference in calculation a taxpayer’s AMTI. They are an adjustment in calculating adjusted gross income for regular tax purposes.
Example Question #72 : Cpa Regulation (Reg)
Of the following, which are allowable itemized deductions for computing AMT income?
Deductible real estate property taxes
Both
Home mortgage interest on a loan to acquire a principal residence
Neither
Home mortgage interest on a loan to acquire a principal residence
Both of these options are normal itemized deductions (Sch A) however not all itemized deductions are included in AMTI.
Example Question #1 : Individual Tax Issues
Under a divorce settlement, Joan transferred her 50% ownership of their personal residence to Jim. The joint basis of the residence was $200,000. At the time of the transfer, the property’s fair market value was $300,000. What was Joan’s recognized gain and Jim’s basis for the residence?
Recognized Gain: $50,000
Basis: $250,000
Recognized Gain: $50,000
Basis: $300,000
Recognized Gain: $0
Basis: $200,000
Recognized Gain: $0
Basis: $300,000
Recognized Gain: $0
Basis: $200,000
In this instance, there is no gain recognized because no consideration changed hands. Additionally, since Jim was an original owner of the home, upon the settlement Joan’s 50% share transfers to him, but the basis does not change.
Example Question #74 : Cpa Regulation (Reg)
Decker, a 62-year-old single individual, sold his principal residence for the net amount of $500,000 after all selling expenses. Decker bought the house 15 years ago and occupied it until it was sold. On the date of sale, the house had a cost basis of $200,000. Within six months, Decker purchased a new house for $600,000. What amount of gain should Decker recognize from the sale of the residence?
$175,000
$0
$50,000
$300,000
$50,000
For individuals, the maximum exclusion of gain for individuals on the sale of their home is $250,000; the amount goes up to $500,000 for married couples who file jointly. Since Decker, a single taxpayer, sold the house at a gain of $300,000 ($500,000 less the original cost of $200,000), he may take the $250,000 exclusion and the remainder, $50,000, is a taxable gain. The cost of the new house does not affect the amount of exclusion or recognized gain.
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