For tax year 2025, Jordan, a single taxpayer who itemizes deductions, has adjusted gross income of $100,000 and pays $12,000 of otherwise qualifying unreimbursed medical expenses. What medical expense deduction is allowable before considering any other limitation?
A. $7,500
B. $12,000
C. $0
D. $4,500
Show answer and reasoning
Correct answer: D. $4,500
Medical expenses are deductible only to the extent they exceed 7.5% of AGI. The floor is $100,000 × 7.5% = $7,500. The deduction is $12,000 − $7,500 = $4,500.
- A: $7,500 is the AGI floor, not the amount above the floor.
- B: $12,000 ignores the statutory 7.5%-of-AGI floor.
- C: Qualifying expenses exceed the floor, so the deduction is not zero.
Source: PRIMARY -- Publication 502, section 'How Much of the Expenses Can You Deduct?', 7.5%-of-AGI limitation (https://www.irs.gov/publications/p502)
A taxpayer sells investment land for $200,000 on the installment method. Adjusted basis is $120,000, selling expenses are $10,000, and there is no debt or depreciation recapture. The taxpayer receives $50,000 of principal in the year of sale. What gross profit is reported from that principal payment?
A. $17,500
B. $20,000
C. $30,000
D. $50,000
Show answer and reasoning
Correct answer: A. $17,500
Gross profit is $200,000 − $120,000 − $10,000 = $70,000. With no debt adjustment, contract price is $200,000, so the gross-profit percentage is 35%. Applying 35% to the $50,000 principal payment produces $17,500 of reportable gain.
- B: $20,000 uses a 40% ratio and omits the $10,000 selling expenses from installment-sale basis.
- C: $30,000 subtracts basis proportionally without using the correct gross-profit percentage.
- D: $50,000 treats the entire principal collection as gain and assigns no basis recovery.
Source: PRIMARY -- Publication 537, sections 'Gross Profit,' 'Contract Price,' and 'Gross Profit Percentage' (https://www.irs.gov/publications/p537)
In December 2025, a cash-method landlord receives $2,000 designated as January 2026 rent and a separate $1,500 security deposit that the lease requires to be returned if the tenant causes no damage. Which amount is generally included in the landlord's 2025 rental income?
A. The $2,000 advance rent
B. Only the $1,500 refundable deposit
C. The full $3,500
D. Neither amount until the lease ends
Show answer and reasoning
Correct answer: A. The $2,000 advance rent
Advance rent is generally included when received, regardless of the period it covers. A security deposit intended to be returned is generally not income when received because the landlord lacks an unrestricted right to keep it.
- B: A genuinely refundable security deposit is generally not income when received, while advance rent is.
- C: Including both amounts incorrectly treats the returnable deposit as unrestricted rent.
- D: The cash-method landlord generally recognizes advance rent upon receipt rather than waiting for the covered month or lease termination.
Source: PRIMARY -- Publication 527, chapter 1 headings 'Advance Rent' and 'Security Deposits' (https://www.irs.gov/publications/p527)
For tax year 2025, an unmarried taxpayer who is under age 65, is not blind, and may not be claimed as a dependent has $14,900 of allowable itemized deductions. Ignoring qualified disaster additions, what deduction should the taxpayer generally claim to maximize the deduction?
A. $14,900 itemized deduction
B. $15,000 standard deduction
C. $15,750 standard deduction
D. $23,625 standard deduction
Show answer and reasoning
Correct answer: C. $15,750 standard deduction
The 2025 basic standard deduction for a single filer is $15,750. Because $15,750 exceeds the taxpayer's $14,900 of itemized deductions and no disqualifying fact is stated, the standard deduction produces the larger deduction.
- A: Itemizing $14,900 produces a smaller deduction than the available standard deduction.
- B: $15,000 is not the 2025 basic standard deduction for the stated filing status.
- D: $23,625 is the 2025 head-of-household amount, and the facts establish only single status.
Source: PRIMARY -- Publication 505 (2025), chapter 2 table 'Standard Deduction Amounts for 2025' (https://www.irs.gov/pub/irs-pdf/p505.pdf)
A beneficiary receives life-insurance proceeds in a lump sum because of the insured's death. No transfer-for-value, interest payment, or other exception applies. How are the proceeds generally treated for federal income-tax purposes?
A. They are excluded from the beneficiary's gross income
B. They are always long-term capital gain
C. They are deductible by the beneficiary
D. They are taxable wages
Show answer and reasoning
Correct answer: A. They are excluded from the beneficiary's gross income
Amounts received under a life-insurance contract by reason of the insured's death are generally excluded from gross income. Interest paid because the insurer retains the proceeds would be separately taxable, but no interest is present here.
- B: Death proceeds are not characterized as capital gain merely because they are received in a lump sum.
- C: The rule is an exclusion from income, not a beneficiary deduction.
- D: The beneficiary did not perform services, so the proceeds are not wages.
Source: PRIMARY -- Publication 525, section 'Life Insurance Proceeds' under Other Income (https://www.irs.gov/publications/p525)
