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CPA Exam — REG (Regulation) practice questions

209 free questions with answers and explanations.

Practice test
  1. 101.A business owner, Ms. Miller, purchased a qualified Section 179 asset for $150,000 and placed it in service on April 1, 2023. Her taxable income before the Section 179 deduction was $100,000. Assuming the maximum Section 179 deduction limit for 2023 was $1,160,000 and the phase-out threshold was $2,890,000, what is Ms. Miller's Section 179 deduction for 2023?Federal Taxation of Property Transactions
  2. 102.A client, Ms. Davis, purchased a new commercial building for $2,000,000 on July 1, 2023. The land value was $500,000. What is the MACRS depreciation deduction for 2023?Federal Taxation of Property Transactions
  3. 103.An individual taxpayer, Ms. Lee, sells her primary residence for $600,000. She purchased the home 8 years ago for $300,000. She lived in the home for 6 of the last 8 years. Over the years, she made $50,000 in capital improvements. What is the taxable gain on the sale of her residence?Federal Taxation of Property Transactions
  4. 104.A married couple filing jointly has an AGI of $180,000. They paid $10,000 in qualified education expenses for their dependent child to attend a public university. They are not claiming any other education credits. What is the maximum American Opportunity Tax Credit (AOTC) they can claim?Federal Taxation of Individuals
  5. 105.A client, an S corporation, has accumulated adjustments account (AAA) of $50,000 and accumulated earnings and profits (AE&P) of $30,000. Its sole shareholder, whose basis in the stock is $80,000, receives a cash distribution of $70,000. What is the shareholder's taxable dividend income from this distribution?Federal Taxation of Entities
  6. 106.A married couple filing jointly has an AGI of $150,000. They incurred $12,000 in qualified unreimbursed medical expenses. What is the maximum amount of medical expenses they can include in their itemized deductions?Federal Taxation of Individuals
  7. 107.A client received a $500 cash rebate from a car manufacturer after purchasing a new vehicle. How should this rebate be treated for federal income tax purposes?Federal Taxation of Individuals
  8. 108.A client, single, age 40, received a $15,000 scholarship. $10,000 was used for tuition and required fees, and $5,000 was used for room and board. What amount of the scholarship must be included in their gross income?Federal Taxation of Individuals
  9. 109.Which of the following describes the primary purpose of the Alternative Minimum Tax (AMT)?Federal Taxation of Individuals
  10. 110.A single taxpayer, age 40, has taxable income of $90,000. They contributed $1,000 to a traditional IRA. They are not covered by a retirement plan at work. What is their maximum deductible IRA contribution for the year?Federal Taxation of Individuals
  11. 111.A client, a C corporation, realized a gain of $75,000 from the sale of land held for investment. It also incurred a loss of $100,000 from the sale of marketable securities. What is the corporation's capital loss deduction for the current year?Federal Taxation of Entities
  12. 112.A client, a domestic C corporation, distributed property with a fair market value (FMV) of $100,000 and an adjusted basis of $70,000 to its sole shareholder in a nonliquidating distribution. The corporation has adequate earnings and profits (E&P). What is the amount of gain recognized by the corporation on this distribution?Federal Taxation of Entities
  13. 113.A client, an S corporation, made a cash distribution of $60,000 to its sole shareholder. The shareholder's basis in the S corporation stock was $40,000 before the distribution. The S corporation's accumulated adjustments account (AAA) balance was $30,000, and it had no accumulated earnings and profits (AE&P). What is the shareholder's recognized gain from this distribution?Federal Taxation of Entities
  14. 114.A client, a C corporation, has taxable income of $750,000 before considering a charitable contribution of $100,000. What is the maximum deductible charitable contribution for the current year?Federal Taxation of Entities
  15. 115.A client, married filing jointly, has a total tax liability before credits of $25,000 for the current year. Their prior year's tax liability was $20,000. Their Adjusted Gross Income (AGI) for the current year is $160,000. To avoid an underpayment penalty, what is the minimum amount of tax they must have paid through withholding and estimated payments by the end of the current tax year?Federal Taxation of Individuals
  16. 116.A single taxpayer, age 50, had a gross income of $100,000. They contributed $7,500 to their Traditional IRA, are not covered by a workplace retirement plan, and have no other adjustments. They also paid $2,000 in student loan interest. What is their Adjusted Gross Income (AGI)?Federal Taxation of Individuals
  17. 117.A taxpayer, Mr. Kim, sells an asset for $70,000. The asset's original cost was $100,000, and its adjusted basis at the time of sale was $60,000. What is the amount and character of the gain or loss if the asset was a business use machine held for 3 years?Federal Taxation of Property Transactions
  18. 118.A taxpayer, single, age 30, works as an independent contractor and receives $50,000 in 1099-NEC income. They incurred $10,000 in allowable business expenses. What is their gross income for tax purposes?Federal Taxation of Individuals
  19. 119.A client, Mr. Rodriguez, sold his personal automobile for $15,000. He had purchased it for $25,000 five years ago. What is the tax treatment of this transaction?Federal Taxation of Property Transactions
  20. 120.A client, Ms. Perez, received a gift of stock from her father. At the time of the gift, the stock had a fair market value (FMV) of $50,000 and her father's adjusted basis was $60,000. Ms. Perez sold the stock for $55,000. What is Ms. Perez's recognized gain or loss on the sale?Federal Taxation of Property Transactions
  21. 121.A client, married filing jointly, has an AGI of $300,000. They have one dependent child aged 7. What is the amount of Child Tax Credit they can claim?Federal Taxation of Individuals
  22. 122.A taxpayer, single, age 45, is preparing their tax return for the current year. They earned $75,000 in W-2 wages and had $2,000 in unreimbursed employee business expenses. They also contributed $6,000 to a traditional IRA and paid $1,500 in state income taxes. What is their Adjusted Gross Income (AGI)?Federal Taxation of Individuals
  23. 123.A corporation, Atlas Corp., acquired a patent for $90,000 on March 1, 2023. What is the amortization deduction for this patent for the tax year 2023?Federal Taxation of Property Transactions
  24. 124.A taxpayer contributes $3,000 to a Health Savings Account (HSA) in 2023. They are covered by a high-deductible health plan (HDHP) and are age 40. What is the maximum amount of this contribution that is deductible as an 'above-the-line' deduction?Federal Taxation of Individuals
  25. 125.A single taxpayer has an Adjusted Gross Income (AGI) of $120,000. They paid $5,000 in student loan interest during the year. What is the maximum student loan interest deduction they can claim?Federal Taxation of Individuals
  26. 126.A client, single, age 42, received $1,000 in qualified dividends and $500 in ordinary dividends. Their taxable income is $45,000. What is the tax rate on their qualified dividends?Federal Taxation of Individuals
  27. 127.A partnership, Green Acres LLC, purchased a residential rental property for $1,500,000 on April 1, 2020. The land was valued at $300,000. What is the maximum MACRS depreciation deduction for this property in 2023? (Residential rental property uses a 27.5-year recovery period and the mid-month convention. Use the appropriate IRS table percentage for the 4th year of a 27.5-year property placed in service in April: 3.636%)Federal Taxation of Property Transactions
  28. 128.A client, Mr. Henderson, purchased a new machine for his manufacturing business on July 1, 2023, for $150,000. He paid $10,000 for sales tax and $5,000 for installation and testing. The machine has an estimated useful life of 10 years. What is the depreciable basis of this machine?Federal Taxation of Property Transactions
  29. 129.A single taxpayer has adjusted gross income (AGI) of $100,000. They paid $5,000 in state income taxes, $3,000 in real estate taxes, and $1,500 in personal property taxes. What is the maximum state and local tax (SALT) deduction the taxpayer can claim in calculating their itemized deductions?Federal Taxation of Individuals
  30. 130.A client, married filing jointly, has two dependent children aged 8 and 12. Their adjusted gross income (AGI) is $480,000. What is the maximum child tax credit they can claim for the current tax year?Federal Taxation of Individuals
  31. 131.A technician, Mr. Lee, sold a piece of equipment for $45,000. The equipment was purchased for $60,000 several years ago and had accumulated depreciation of $25,000. What is the total gain realized on the sale of this equipment?Federal Taxation of Property Transactions
  32. 132.A client, a limited partnership, has two partners: a general partner (GP) with a 60% interest and a limited partner (LP) with a 40% interest. The partnership has $100,000 of recourse liabilities. In the current year, the partnership incurs an ordinary loss of $150,000. The GP's basis before losses is $70,000, and the LP's basis before losses is $30,000. How are the recourse liabilities allocated for basis purposes?Federal Taxation of Entities
  33. 133.A client, a partnership, distributes a nonliquidating cash distribution of $20,000 to Partner A. Partner A's adjusted basis in the partnership interest immediately before the distribution was $15,000. What is Partner A's recognized gain and basis in the partnership interest after the distribution?Federal Taxation of Entities
  34. 134.A client, married filing jointly, has a total tax liability of $20,000 for the current year. They had $18,000 withheld from their wages. What is the minimum additional tax payment they must make by the filing deadline to avoid the underpayment penalty, assuming no prior year safe harbor applies and they are not high-income taxpayers?Federal Taxation of Individuals
  35. 135.A client, an S corporation, distributes land with a fair market value (FMV) of $100,000 and an adjusted basis of $70,000 to its sole shareholder. The shareholder's stock basis before the distribution is $150,000. Assuming the S corporation has no accumulated earnings and profits (AE&P), what is the shareholder's recognized gain from the distribution?Federal Taxation of Entities
  36. 136.A partnership, Delta LLC, purchased a new machine for $150,000 on January 1, 2023. The machine is 7-year MACRS property. Delta LLC did not elect Section 179 expense or bonus depreciation. What is the MACRS depreciation deduction for 2023?Federal Taxation of Property Transactions
  37. 137.A business, 'Green Thumb Landscaping', purchased a new light-duty truck for $40,000 on November 15, 2023. This was the only asset purchased during the year. The truck is 5-year MACRS property. What is the MACRS depreciation deduction for 2023?Federal Taxation of Property Transactions
  38. 138.A taxpayer, Ms. Rodriguez, purchased an apartment building for $1,000,000 on January 1, 2010. The land was valued at $200,000. She sold the building on January 1, 2024, for $1,200,000. Total accumulated straight-line depreciation taken was $300,000. What is Ms. Rodriguez's unrecaptured Section 1250 gain?Federal Taxation of Property Transactions
  39. 139.A client, a tax-exempt organization, received a grant of $1,000,000 from a donor. The donor specified that the funds must be used to build a new research facility and that the facility must be completed within five years. If the facility is not completed, the funds must be returned. How should this grant be classified in the organization's net assets?Federal Taxation of Entities
  40. 140.A client, a tax-exempt organization, operates a specialized vocational training program. As part of this program, the organization sells products manufactured by its trainees, where the sales help to cover the costs of materials and provide practical experience to the trainees. The products are sold at market rates to the general public. Which of the following statements best describes the taxability of the income from these sales?Federal Taxation of Entities
  41. 141.A client, an S corporation, makes a nonliquidating distribution of land to its sole shareholder. The land has a fair market value (FMV) of $120,000 and an adjusted basis of $80,000 to the S corporation. The shareholder's basis in the S corporation stock is $150,000. What is the S corporation's recognized gain on this distribution?Federal Taxation of Entities
  42. 142.A client, a C corporation, has $50,000 of current earnings and profits (E&P) and an accumulated deficit of ($20,000) at the beginning of the year. The corporation makes a cash distribution of $60,000 to its sole shareholder during the current year. What portion of the distribution is taxable as a dividend to the shareholder?Federal Taxation of Entities
  43. 143.A client, a qualified S corporation, has a single shareholder, Alex, whose basis in his stock is $40,000 at the beginning of the year. During the year, the S corporation reports ordinary business income of $30,000, municipal bond interest income of $5,000, and makes a cash distribution to Alex of $20,000. What is Alex's ending stock basis?Federal Taxation of Entities
  44. 144.A client, an S corporation, distributes land with a fair market value (FMV) of $120,000 and an adjusted basis of $80,000 to its sole shareholder. The S corporation has no accumulated earnings and profits (AE&P), and its accumulated adjustments account (AAA) balance is $70,000 before the distribution. What is the amount of gain, if any, recognized by the S corporation on this distribution?Federal Taxation of Entities
  45. 145.A technician, operating a small independent repair shop, is considering incorporating the business as a C corporation. Which of the following statements regarding the tax implications of forming a C corporation is most accurate?Federal Taxation of Entities
  46. 146.A client, a domestic C corporation, incurred a net capital loss of $30,000 in 2023. In 2021, the corporation had a net capital gain of $5,000, and in 2022, it had a net capital gain of $10,000. The corporation had no other capital gains or losses in prior years. How much of the 2023 net capital loss can be carried back to 2021?Federal Taxation of Entities
  47. 147.A client, a C corporation, has taxable income of $900,000 before considering a charitable contribution of $100,000 and a net operating loss (NOL) carryover from a prior year of $50,000. What is the maximum charitable contribution deduction the corporation can take for the current year?Federal Taxation of Entities
  48. 148.A client, a partnership, made a nonliquidating distribution of marketable securities to Partner G. The securities had a fair market value (FMV) of $40,000 and an adjusted basis to the partnership of $25,000. Partner G's outside basis in the partnership immediately before the distribution was $30,000. What is Partner G's basis in the distributed marketable securities?Federal Taxation of Entities
  49. 149.A client, an S corporation, has accumulated earnings and profits (AE&P) of $30,000 and an accumulated adjustments account (AAA) balance of $40,000 at the beginning of the year. During the year, the S corporation generates $20,000 of ordinary business income and makes a cash distribution of $75,000 to its sole shareholder. What portion of the distribution is considered a tax-free return of capital?Federal Taxation of Entities
  50. 150.A client, a newly formed partnership, incurred $15,000 in organizational costs and $25,000 in start-up costs during its first year of operations. The partnership began active trade or business on July 1, 2023. Assuming the partnership makes the maximum allowable election under IRC Section 195 and 709, what is the total amortizable amount deductible in 2023?Federal Taxation of Entities