CTP Tax Planning & Strategy 3 — Questions and Answers
Question 1: A married couple earns $500,000 combined. What is the additional Medicare tax rate applied to wages above the $250,000 threshold for joint filers?
- 0.9% (Correct answer)
- 1.45%
- 2.9%
- 3.8%
Correct answer: 0.9%
The Additional Medicare Tax is 0.9% on wages and self-employment income above $250,000 for married filing jointly ($200,000 for single filers).
Question 2: Which of the following Section 1231 transactions results in ordinary income rather than capital gain treatment when the asset was subject to accelerated depreciation?
- Sale at a loss
- Sale at a gain equal to accumulated depreciation (Section 1245 recapture) (Correct answer)
- Sale of a capital asset held more than one year
- Like-kind exchange with no boot received
Correct answer: Sale at a gain equal to accumulated depreciation (Section 1245 recapture)
Section 1245 recapture converts gain equal to prior depreciation deductions back to ordinary income, preventing taxpayers from converting ordinary deductions into lower-taxed capital gains.
Question 3: A taxpayer makes a $15,000 gift to a friend in 2024. How much of this gift is subject to federal gift tax reporting?
- $15,000
- $0 — the entire amount is excluded (Correct answer)
- $1,000
- $4,000
Correct answer: $0 — the entire amount is excluded
The 2024 annual gift tax exclusion is $18,000 per recipient; since $15,000 is below that threshold, no gift tax return is required and no taxable gift occurs.
Question 4: Under the passive activity loss rules, which taxpayer may deduct up to $25,000 of rental real estate losses against non-passive income?
- Any taxpayer who owns rental property
- A taxpayer who actively participates with MAGI below $100,000 (Correct answer)
- A real estate professional with any income level
- A taxpayer who materially participates in the rental activity
Correct answer: A taxpayer who actively participates with MAGI below $100,000
The $25,000 rental real estate allowance phases out between $100,000 and $150,000 MAGI and requires the taxpayer to actively participate (not materially participate) in the rental activity.
Question 5: Which of the following best describes a tax-free reorganization under Section 368 of the IRC?
- A sale of business assets for cash at fair market value
- A corporate restructuring that meets statutory requirements allowing shareholders to defer gain recognition (Correct answer)
- A liquidation of a corporation distributed to shareholders
- A spin-off that fails the active business test
Correct answer: A corporate restructuring that meets statutory requirements allowing shareholders to defer gain recognition
Section 368 reorganizations (mergers, consolidations, stock-for-stock exchanges) allow shareholders to defer gain recognition when statutory requirements such as continuity of interest and business purpose are met.
Question 6: A taxpayer converts a traditional IRA to a Roth IRA in a year when they are in the 22% bracket but expect to be in the 32% bracket in retirement. What is the primary tax planning benefit?
- Avoiding RMDs during the taxpayer's lifetime
- Converting at a lower tax rate now to avoid higher taxes on future distributions
- Eliminating the 10% early withdrawal penalty
- Both A and B (Correct answer)
Correct answer: Both A and B
Roth conversions eliminate lifetime RMDs and allow the taxpayer to pay taxes now at 22% rather than later at 32%, providing both estate planning and income tax savings.
Question 7: A C corporation has a fiscal year ending June 30. When is the federal corporate income tax return (Form 1120) due?
- April 15
- September 15 (Correct answer)
- October 15
- March 15
Correct answer: September 15
C corporation returns are due on the 15th day of the fourth month after the fiscal year end, so a June 30 fiscal year end means the return is due September 15.
CTP Tax Planning & Strategy 3
A married couple earns $500,000 combined.
What is the additional Medicare tax rate applied to wages above the $250,000 threshold for joint filers?