CTP Tax Planning & Strategy 4 — Questions and Answers
Question 1: A taxpayer who contributes appreciated stock (held more than one year) to a public charity can deduct which of the following?
- The original cost basis of the stock
- The fair market value of the stock, subject to AGI limitations (Correct answer)
- The fair market value minus the capital gain
- The gain only, not the basis
Correct answer: The fair market value of the stock, subject to AGI limitations
Donating appreciated long-term capital gain property to a public charity allows a deduction at fair market value, limited to 30% of AGI, avoiding capital gains tax entirely.
Question 2: Under the qualified business income (QBI) deduction of Section 199A, which of the following is a Specified Service Trade or Business (SSTB) that phases out at higher income levels?
- Architecture firm
- Engineering firm
- Law firm (Correct answer)
- Real estate brokerage
Correct answer: Law firm
Law is explicitly listed as an SSTB under Section 199A; architecture and engineering are specifically excluded from SSTB classification, and real estate brokerage is not an SSTB.
Question 3: Which installment sale method allows a taxpayer to spread gain recognition over multiple years as payments are received?
- Section 453 installment method (Correct answer)
- Section 1031 like-kind exchange
- Section 121 principal residence exclusion
- Section 1245 recapture method
Correct answer: Section 453 installment method
Section 453 allows taxpayers to report gain in proportion to installment payments received, deferring recognition of gain and tax liability to future years.
Question 4: A taxpayer's NOL from 2022 can be carried forward and used to offset what percentage of taxable income in future years under current law (post-TCJA)?
- 100%
- 80% (Correct answer)
- 50%
- 60%
Correct answer: 80%
Under the Tax Cuts and Jobs Act, NOLs arising after December 31, 2017 can only offset up to 80% of taxable income in the carryforward year, with indefinite carryforward.
Question 5: A taxpayer owns a vacation home that is rented for 45 days and used personally for 20 days during the year. How is it classified for tax purposes?
- Pure rental property — all expenses deductible (Correct answer)
- Vacation home with limited deductions (Section 280A applies)
- Primary residence eligible for Section 121 exclusion
- Investment property with no personal use limitation
Correct answer: Pure rental property — all expenses deductible
When personal use does not exceed the greater of 14 days or 10% of rental days (10% of 45 = 4.5 days), the property is treated as a rental property and all ordinary expenses are deductible.
Question 6: Which estate planning strategy involves an irrevocable trust where the grantor retains an annuity stream, with any remaining assets passing to heirs gift-tax-efficiently if the grantor survives the trust term?
- Qualified Personal Residence Trust (QPRT)
- Grantor Retained Annuity Trust (GRAT) (Correct answer)
- Charitable Remainder Trust (CRT)
- Spousal Lifetime Access Trust (SLAT)
Correct answer: Grantor Retained Annuity Trust (GRAT)
A GRAT allows the grantor to transfer appreciation above the IRS hurdle rate (Section 7520 rate) to beneficiaries gift-tax-free if the grantor outlives the trust term.
Question 7: A taxpayer in the 37% bracket has $100,000 of short-term capital gains and $100,000 of long-term capital losses. What is the net tax result?
- $37,000 tax on short-term gains only
- The losses fully offset the gains; $0 net tax (Correct answer)
- Net $3,000 capital loss deduction with $97,000 carryforward
- Long-term losses can only offset long-term gains
Correct answer: The losses fully offset the gains; $0 net tax
Capital losses (regardless of holding period) offset capital gains of either type; $100,000 long-term losses fully offset $100,000 short-term gains, resulting in zero net capital gain.
CTP Tax Planning & Strategy 4
A taxpayer who contributes appreciated stock (held more than one year) to a public charity can deduct which of the following?