CTP CTP Tax Credits, Deductions & Exemptions 2 — Questions and Answers
Question 1: The American Opportunity Tax Credit (AOTC) provides a maximum annual credit of how much for qualified education expenses?
- $2,500 (Correct answer)
- $2,000
- $1,000
- $4,000
Correct answer: $2,500
The AOTC provides up to $2,500 per eligible student per year for the first four years of post-secondary education, with 40% ($1,000) potentially refundable.
Question 2: The Section 179 deduction allows a business to:
- Immediately expense the cost of qualifying property rather than depreciating it over time (Correct answer)
- Deduct 50% of an asset's cost in the first year
- Exclude gains on the sale of business equipment from income
- Amortize start-up costs over 15 years
Correct answer: Immediately expense the cost of qualifying property rather than depreciating it over time
IRC §179 allows businesses to immediately deduct the full purchase price of qualifying equipment and software in the year it is placed in service, up to an annual limit.
Question 3: The Lifetime Learning Credit (LLC) differs from the American Opportunity Tax Credit in that it:
- Is available for an unlimited number of years and applies to a broader range of courses (Correct answer)
- Is fully refundable up to $1,000
- Has a higher maximum credit amount of $3,000
- Is only available to graduate students
Correct answer: Is available for an unlimited number of years and applies to a broader range of courses
The Lifetime Learning Credit has no limit on the number of years it can be claimed and covers any courses that improve job skills, unlike the AOTC which is limited to the first four years of college.
Question 4: A taxpayer may deduct home office expenses only if the space is used:
- Regularly and exclusively for business as the principal place of business or for meeting clients (Correct answer)
- Occasionally for business purposes when working from home
- As a dedicated room labeled as an office on property records
- For any business activity, even if also used personally
Correct answer: Regularly and exclusively for business as the principal place of business or for meeting clients
IRC §280A requires that a home office be used regularly and exclusively for business as the taxpayer's principal place of business or to meet clients in order to be deductible.
Question 5: The net operating loss (NOL) deduction under TCJA is limited to what percentage of taxable income in carryforward years?
- 80% (Correct answer)
- 100%
- 50%
- 60%
Correct answer: 80%
TCJA limits NOL carryforwards to 80% of taxable income in the year the loss is applied, eliminating the previous two-year carryback and allowing unlimited carryforward.
Question 6: Which of the following is a 'above-the-line' deduction (adjustment to income) available to self-employed individuals?
- Deduction for self-employment tax equal to 50% of SE tax paid (Correct answer)
- Deduction for home mortgage interest
- Deduction for charitable contributions up to 60% of AGI
- Deduction for investment losses up to $3,000
Correct answer: Deduction for self-employment tax equal to 50% of SE tax paid
Self-employed individuals may deduct 50% of their self-employment tax as an above-the-line adjustment to income under IRC §164(f), regardless of whether they itemize.
CTP CTP Tax Credits, Deductions & Exemptions 2
The American Opportunity Tax Credit (AOTC) provides a maximum annual credit of how much for qualified education expenses?