Income and Assets Flashcards

A taxpayer receives a scholarship that covers tuition and required fees at a qualified educational institution. How is the scholarship treated?

Answer: Excluded from gross income to the extent used for tuition and required fees

Under IRC §117, scholarships used for tuition and required fees at a qualified institution are excluded from gross income for degree candidates.

A taxpayer has $10,000 of cancelled credit card debt included in their gross income. However, they were insolvent by $7,000 immediately before the cancellation. How much is excluded from income?

Answer: $7,000 — limited to the amount of insolvency

Cancelled debt is excluded from gross income to the extent the taxpayer was insolvent immediately before the cancellation under IRC §108.

What is the holding period rule for property inherited from a decedent?

Answer: The property is always treated as held long-term regardless of when sold

Inherited property is automatically treated as held long-term for capital gain purposes, regardless of how long either the decedent or heir actually held it.

A taxpayer sells depreciable Section 1245 personal property at a gain. How is the gain taxed?

Answer: As ordinary income to the extent of depreciation taken, with any remaining gain as Section 1231 gain

Section 1245 recaptures all depreciation as ordinary income; any gain above the original cost is treated as Section 1231 (potentially long-term capital) gain.

Which of the following Social Security benefit amounts is generally included in gross income for a taxpayer whose combined income exceeds $44,000 (MFJ)?

Answer: Up to 85%

When combined income exceeds $44,000 for MFJ taxpayers, up to 85% of Social Security benefits may be included in gross income.

A taxpayer receives a distribution from a Health Savings Account (HSA) used to pay non-qualified expenses before age 65. What is the tax treatment?

Answer: Included in income and subject to a 20% additional tax

Non-qualified HSA distributions are included in gross income and subject to an additional 20% penalty tax (unless the taxpayer is age 65 or older, disabled, or deceased).

A taxpayer contributes appreciated stock worth $50,000 (basis $10,000) to a public charity. What is the maximum deduction allowed (assuming 30% AGI limit applies and AGI is $100,000)?

Answer: $30,000 (30% of AGI)

Contributions of long-term appreciated capital gain property to public charities are deductible at FMV but limited to 30% of AGI ($30,000); excess carries forward 5 years.