A partner sells a partnership interest for $75,000 cash. The partner's adjusted outside basis is $52,000, and selling expenses are $3,000. Ignoring section 751 character reclassification, what total gain is realized?
A. $23,000
B. $20,000
C. $26,000
D. $72,000
Show answer and reasoning
Correct answer: B. $20,000
Net amount realized is $75,000 minus $3,000 selling expenses, or $72,000. Subtracting the $52,000 outside basis produces $20,000 total gain before character allocation.
- A: $23,000 ignores the $3,000 selling expenses.
- C: $26,000 adds selling expenses to gain rather than reducing amount realized.
- D: $72,000 is net amount realized before subtracting outside basis.
Source: PRIMARY -- Publication 541, heading 'Disposition of Partner's Interest,' amount realized and adjusted basis (https://www.irs.gov/publications/p541)
A sole proprietor qualifies to deduct actual expenses for business use of a home and must calculate the allowable amount and any carryover. Which form generally performs that calculation?
A. Form 8829
B. Form 940
C. Form 990-PF
D. Form 6252
Show answer and reasoning
Correct answer: A. Form 8829
Form 8829 is generally used by a Schedule C filer to figure allowable expenses for business use of a home under the actual-expense method. The result generally flows to Schedule C.
- B: Form 940 reports annual federal unemployment tax.
- C: Form 990-PF is the annual return for a private foundation.
- D: Form 6252 reports income from an installment sale.
Source: PRIMARY -- IRS page 'About Form 8829, Expenses for Business Use of Your Home,' purpose statement (https://www.irs.gov/forms-pubs/about-form-8829)
A business gives one customer a $90 holiday gift during 2025. The gift is not entertainment, has no incidental-cost adjustment, and no exception applies. What is the general deduction limit for the gift to that recipient?
Show answer and reasoning
Correct answer: D. $25
The business-gift deduction is generally limited to $25 per recipient per year. The remaining $65 is nondeductible under the stated facts.
- A: $90 ignores the per-recipient annual limitation.
- B: $45 applies no recognized percentage or statutory ceiling to the stated gift.
- C: A qualifying business gift can produce a deduction up to the statutory limit.
Source: PRIMARY -- Publication 463, chapter 3, heading '$25 limit on business gifts' (https://www.irs.gov/publications/p463)
An estate has $35,000 of distributable net income and makes a deductible distribution of $50,000 to its sole beneficiary. There is no tax-exempt income or other adjustment. What is the estate's maximum income distribution deduction under the stated facts?
A. $35,000
B. $50,000
C. $15,000
D. $0
Show answer and reasoning
Correct answer: A. $35,000
The income distribution deduction is generally limited to distributable net income. Although the estate distributed $50,000, the stated $35,000 DNI caps the deduction at $35,000.
- B: $50,000 ignores the DNI ceiling on the estate's income distribution deduction.
- C: $15,000 is the distribution exceeding DNI, not the allowable deduction.
- D: A qualifying beneficiary distribution can produce a deduction up to the DNI limit.
Source: PRIMARY -- 2025 Instructions for Form 1041, Schedule B, lines 9 through 15 and DNI limitation (https://www.irs.gov/instructions/i1041)
A sole proprietor borrows $100,000 and uses $70,000 for business equipment and $30,000 for a personal vacation. The loan incurs $8,000 of interest, and no limitation other than tracing applies. How much interest is allocable to the business use?
A. $8,000
B. $2,400
C. $5,600
D. $7,000
Show answer and reasoning
Correct answer: C. $5,600
Interest is generally allocated by tracing the use of the loan proceeds. Seventy percent of the proceeds fund the business, so $8,000 × 70% equals $5,600 of business interest.
- A: $8,000 deducts the portion allocable to personal consumption as though it were business interest.
- B: $2,400 is the 30% personal-use portion rather than the business allocation.
- D: $7,000 confuses the 70% allocation with a dollar amount based on $10,000.
Source: PRIMARY -- Publication 535, chapter 4, heading 'Allocation of Interest' and tracing disbursements to uses (https://www.irs.gov/publications/p535)
