CPA Regulation (REG) : Individual Tax Issues
Study concepts, example questions & explanations for CPA Regulation (REG)
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Example Questions
Example Question #1 : Sale Of Principal Residence
Andrew and Brittany are married. They have resided full time in their principal residence for the last 20 years. They have decided to sell their home. Once the transaction was finalized, they were presented with the final amounts. Sale price = $750,000 Cost basis = $100,000. How much of a gain must the two recognize from the sale on their joint tax return?
$150,000
$650,000
$400,000
$300,000
$650,000
Each spouse would be able to claim their $250,000 deduction against the gain of sale of a principal residence. Together, this deduction would total $500,000. $750,000-$100,000-$500,000=$150,000
Example Question #82 : Cpa Regulation (Reg)
For a move of principal residence within the United States due to a change in job, which expenses can be deducted as moving expenses?
None
Temporary living costs
Moving costs
Fuel costs
None
Only moving expenses for military orders are deductible now under current tax legislation.
Example Question #11 : Individual Tax Issues
A 22-year-old full-time student earned $11,000 in salary and received $9,000 in interest from corporate bonds. The bonds were a gift from the student's grandparents. The student's parents pay more than half of the student's support, including $25,000 in tuition. Which of the following statements is correct regarding the student's current-year income tax?
Both the student's salary and a portion of the interest income will be subject to the "kiddie tax."
The student's salary income and no other income will be subject to the "kiddie tax."
A portion of the student's interest income and no other income will be subject to the "kiddie tax."
Neither the student's salary nor the interest income will be subject to the "kiddie tax."
A portion of the student's interest income and no other income will be subject to the "kiddie tax."
As a full-time student with more than $2,200 in unearned income (interest income), and who does not earn more than half their own support is subject to the kiddie tax. This tax applies only to unearned income, not earned, meaning the salary is subject only to regular income taxes.
Example Question #2 : Dependents
June earned $400,000 in his business during the current year, and her husband Steve received investment income of $20,000. June provides more than half of the support for her 50-year-old widowed brother, who lives with June and earned $44,000 in salary. June also provides full support for her children, an 18-year-old daughter and a 20-year-old son, who is a full-time college student. The family employs a live-in housekeeper and a live-in butler to assist them with their residence. Both the housekeeper and butler provided all of their own support. How many people qualify as either a qualifying child or qualifying relative for June?
Five
Four
Zero
Two
Two
Only the children meet the qualifications of dependents (each as a qualifying child). Since the children receive full support from their parents and are either a) under 19 or b) under 24 and full-time college students, they meet the basic criteria as qualifying children. The widowed brother does not qualify because his gross income exceeds $4,300.
Example Question #3 : Dependents
Jake and Andrea contribute to more than half of the support of their three children, Kenny, Bryan, and Jennifer. Kenny, age 20, worked full time at the local bakery and earned $20,000. Bryan, 18, is a part-time college student who earned $6,000 working as a resident assistant in the student dormitory where he lived half the year. Jennifer, age 25, is an aspiring actress who lives at home with Jake and Andrea. Jennifer earned $2,500 for three commercials she starred in. Who qualifies as a dependent for Jake and Andrea under either the rules of qualifying child or qualifying relative?
Kenny
Kenny, Bryan, and Jennifer
Bryan and Jennifer
Kenny and Bryan
Bryan and Jennifer
Only Bryan and Jennifer qualify. Bryan is considered a qualifying child since he is under age 19, lives with his parents half the year, and receives more than half his support from his parents. Jennifer is considered a qualifying relative since she is a child of the parents, receives more than half her support from them, and makes less than $4,300 in gross income. Kenny is over 19, not a college student, and makes over $4,300 in gross income, which disqualifies him as a dependent.
Example Question #4 : Dependents
The Kent family has a 21 year old son Andrew, who is a full-time student at a university. Andrew received $10,000 in scholarships this year for academic achievement. He also works part time at the bookstore and earned $5,400 this year. The Kents paid $7,000 to support Andrew this year. Andrew was home for two months in the summer and at school for the rest of the year. Andrew used the scholarship, the wages from his part time job, and the money from his parents as his only source of support this year. Which of the following status’ does Andrew meet?
Qualifying child
Qualifying person
Qualifying relative
Exemption
Qualifying child
Andrew meets the definition of qualifying child for the Kent family. He meets the close relative test because he is their son. He is under the age of 24 and is a full-time student so he meets the age limit. He meets the residency requirements because his principal place of residence is his parents home since he is only away as a student. He also does not provide more than half of his own support.
Example Question #5 : Dependents
Of the following, which is or are among the requirements to enable taxpayers to be classified as a “qualifying widower”? A) The dependent has lived with the taxpayer for six months B) The taxpayer has maintained the cost of the principal residence for six months
B
Both
Neither
A
Neither
These requirements do not enable a taxpayer to be classified as a qualifying widower.
Example Question #6 : Dependents
Jared has two children, an 18-year-old son and a 20-year-old daughter who is a full-time student. Both children have not made more than $1,000 each from their part-time jobs. Which of the following children would qualify as a qualifying relative or child?
The son
Both
The daughter
Neither
Both
Both of these children qualify as qualifying children. They are close relatives, they are within the age limit, receive their support from their father, and do not make enough income themselves.
Example Question #12 : Individual Tax Issues
In which of the following scenarios would the head of household filing status be available to the taxpayer?
A single taxpayer maintains a separate home for his parent, who qualifies as a dependent.
A taxpayer with no dependents is the surviving spouse of an individual who died in the current year.
A single taxpayer maintains a household that is the principal home for five months of the year for his disabled child.
An unmarried taxpayer maintains a household with a 28-year-old son, who earned $10,000 during the tax year.
A single taxpayer maintains a separate home for his parent, who qualifies as a dependent.
Head of household is available to unmarried or legally separated taxpayers who maintain the principle residence of a qualifying dependent for at least half the year. The taxpayer’s parent does not have to live with the taxpayer, but the taxpayer must maintain the home of the parent. Individuals who do not qualify as children are subject to a gross income limitation of $4,300 to be considered a dependent.
Example Question #2 : Selecting A Filing Status
Which of the following is (are) among the requirements to enable a taxpayer to be classified as a “qualifying widow(er)”?
I. A dependent has lived with the taxpayer for six months.
II. The taxpayer has maintained the cost of the principal residence for six months.
II only.
Neither I or II.
I only.
Both I and II.
Neither I or II.
Requirements to file as a qualifying widow(er) are that the suriving spouse must pay over half the cost of maintaining a household where a dependent child lives for the whole taxable year.
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