Income and Assets Flashcards
7 cards from real IRS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Income and Assets flashcards as text
A taxpayer receives a life insurance death benefit of $200,000 as the named beneficiary. How is the death benefit treated?
Answer: Excluded from gross income
Life insurance death benefits paid to a beneficiary are generally excluded from gross income under IRC §101(a).
Which method of accounting requires income to be reported when earned and expenses deducted when incurred, regardless of cash flow?
Answer: Accrual method
The accrual method recognizes income when earned and expenses when incurred, not when cash is actually received or paid.
A taxpayer sells a principal residence with a realized gain of $400,000. They are married filing jointly and meet all ownership and use tests. How much gain is excluded?
Answer: $500,000 limit applies, so the entire $400,000 is excluded
Married filing jointly taxpayers may exclude up to $500,000 of gain on the sale of a qualifying principal residence; the $400,000 gain falls entirely within this limit.
What is the basis of property received as a gift if the fair market value at the time of the gift is LESS than the donor's adjusted basis?
Answer: The donor's basis for gain purposes; FMV for loss purposes
When FMV is less than the donor's basis, the donee uses FMV to determine a loss and the donor's basis to determine a gain (the 'dual basis' rule).
A taxpayer receives alimony payments under a divorce agreement executed in 2020. How does the recipient treat these payments?
Answer: Excluded from income because the agreement was post-2018
Under the Tax Cuts and Jobs Act, alimony received under agreements executed after December 31, 2018 is excluded from the recipient's gross income.
Which of the following is NOT included in a taxpayer's gross income?
Answer: Workers' compensation benefits received due to a job injury
Workers' compensation benefits are specifically excluded from gross income under IRC §104(a)(1).
A taxpayer holds depreciable rental property for 3 years and then sells it at a gain. Which code section may cause part of the gain to be taxed as ordinary income?
Answer: Section 1250
Section 1250 recaptures depreciation taken on real property as ordinary income (unrecaptured Section 1250 gain is taxed at a maximum 25% rate).