PFS Tax Planning 2

Question 1

A client sells a vacation home used personally 30 days and rented 90 days during the year. How is the rental income classified?

Accepted Answer

Mixed-use property with proportional deductions

Answer

Because personal use (30 days) exceeds the greater of 14 days or 10% of rental days (9 days), the property is a personal/rental mixed-use home and deductions are prorated.

Question 2

Which type of IRA contribution is never deductible regardless of income or employer plan coverage?

Accepted Answer

Roth IRA

Answer

Roth IRA contributions are made with after-tax dollars and are never deductible on a federal tax return.

Question 3

A taxpayer exercises incentive stock options (ISOs) and holds the shares. What is the immediate tax consequence for regular tax purposes?

Accepted Answer

No regular income tax at exercise

Answer

For regular income tax purposes, exercising ISOs creates no taxable income at exercise; however, the spread is an AMT preference item.

Question 4

Under the passive activity loss rules, which taxpayer can deduct up to $25,000 of rental real estate losses against non-passive income?

Accepted Answer

An active participant with MAGI below $100,000

Answer

The $25,000 special allowance for rental real estate is available to active participants whose MAGI does not exceed $100,000 (phasing out at $150,000).

Question 5

Which tax-loss harvesting strategy must investors avoid to preserve the deductibility of a capital loss?

Accepted Answer

Repurchasing the same or substantially identical security within 30 days

Answer

The wash-sale rule disallows a capital loss if the same or substantially identical security is purchased within 30 days before or after the sale.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Tax Planning 2