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 has a net short-term capital loss of $3,000 and a net long-term capital gain of $8,000. What is the net capital gain reported?
Answer: $5,000 long-term capital gain
Short-term capital losses offset long-term capital gains first; $8,000 − $3,000 = $5,000 net long-term capital gain.
What is the annual capital loss deduction limit against ordinary income for an individual taxpayer?
Answer: $3,000
Individuals may deduct up to $3,000 of net capital losses against ordinary income per year; excess losses carry forward.
A taxpayer receives stock options from their employer and exercises nonqualified stock options (NQSOs) this year. When is ordinary income recognized?
Answer: When the options are exercised
For NQSOs, ordinary income equal to the spread (FMV minus exercise price) is recognized at the time of exercise.
A taxpayer converts a traditional IRA to a Roth IRA. What is the tax treatment of the converted amount?
Answer: Included in gross income in the year of conversion
The taxable portion of a traditional IRA converted to a Roth IRA is included in gross income in the year of the conversion.
Under the installment sale method, when does a taxpayer recognize gain from the sale of appreciated property?
Answer: As payments are received, proportional to the gross profit percentage
Installment method spreads gain recognition over the collection period; each payment contains a proportionate amount of gain based on the gross profit ratio.
A taxpayer's employer pays the employee's personal federal income tax liability. How is this payment treated?
Answer: Includible in the employee's gross income as compensation
When an employer pays an employee's personal tax liability, that payment is additional compensation includible in the employee's gross income.
Which of the following assets is classified as a capital asset under IRC §1221?
Answer: Stock held in a personal investment account
Investment stock held by a taxpayer is a capital asset; inventory, receivables from services, and depreciable business property are explicitly excluded from the definition.