Free CPA REG (Taxation & Regulation) Federal Taxation of Individuals Practice Questions
Federal taxation of individuals on the CPA REG exam covers gross income inclusions and exclusions, above-the-line adjustments, itemized and standard deductions, tax credits, filing status determination, and the alternative minimum tax (AMT).
Sample Questions
Question 1
Easy
Which of the following amounts must be included in a taxpayer's gross income?
Solution
B is correct.
Alimony received under a divorce agreement executed before 2019 is included in the recipient's gross income under Section 71 as it existed prior to the Tax Cuts and Jobs Act. The TCJA eliminated the inclusion for agreements executed after December 31, 2018, but pre-2019 agreements remain subject to the prior rules unless modified.
Alimony received under a divorce agreement executed before 2019 is included in the recipient's gross income under Section 71 as it existed prior to the Tax Cuts and Jobs Act. The TCJA eliminated the inclusion for agreements executed after December 31, 2018, but pre-2019 agreements remain subject to the prior rules unless modified.
Question 2
Medium
Sam and Rachel, married filing jointly, have two qualifying children ages 6 and 10 for the 2025 tax year. Their AGI is $385,000. What is the amount of their child tax credit?
Solution
B is correct.
Under IRC Section 24, as updated by the One Big Beautiful Bill Act, the child tax credit is $2,200 per qualifying child for 2025. For married filing jointly, the credit begins to phase out at AGI of $400,000. Sam and Rachel's AGI of $385,000 is below the $400,000 threshold, so no phaseout reduction applies. Their credit is $2,200 multiplied by 2 children equals $4,400.
Under IRC Section 24, as updated by the One Big Beautiful Bill Act, the child tax credit is $2,200 per qualifying child for 2025. For married filing jointly, the credit begins to phase out at AGI of $400,000. Sam and Rachel's AGI of $385,000 is below the $400,000 threshold, so no phaseout reduction applies. Their credit is $2,200 multiplied by 2 children equals $4,400.
Question 3
Hard
A taxpayer who is married filing jointly has wages of 280,000 and net investment income of 30,000 in 2025. The taxpayer's modified AGI is 310,000. Which additional taxes apply?
Solution
B is correct.
Under IRC Section 3101(b)(2), the 0.9% Additional Medicare Tax applies to wages in excess of 250,000 for married filing jointly filers. The taxpayer has wages of 280,000, so 30,000 of wages (280,000 minus 250,000) are subject to the 0.9% tax. Under IRC Section 1411, the 3.8% Net Investment Income Tax applies to the lesser of net investment income or the excess of MAGI over the applicable threshold. For MFJ filers, the NIIT threshold is 250,000. The taxpayer's MAGI is 310,000, which exceeds 250,000 by 60,000. Net investment income is 30,000. The lesser of 30,000 and 60,000 is 30,000, so the full 30,000 of net investment income is subject to the 3.8% NIIT.
Under IRC Section 3101(b)(2), the 0.9% Additional Medicare Tax applies to wages in excess of 250,000 for married filing jointly filers. The taxpayer has wages of 280,000, so 30,000 of wages (280,000 minus 250,000) are subject to the 0.9% tax. Under IRC Section 1411, the 3.8% Net Investment Income Tax applies to the lesser of net investment income or the excess of MAGI over the applicable threshold. For MFJ filers, the NIIT threshold is 250,000. The taxpayer's MAGI is 310,000, which exceeds 250,000 by 60,000. Net investment income is 30,000. The lesser of 30,000 and 60,000 is 30,000, so the full 30,000 of net investment income is subject to the 3.8% NIIT.