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Updated: Jun 01, 2026
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1. Which of the following sales should be reported as a capital gain?
A) Real property subdivided and sold by a dealer.
B) Government bonds sold by an individual investor.
C) Sale of equipment.
D) Sale of inventory.
2. Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for
$ 15,000 on December 15, 1992, and an additional 100 shares for $13,000 on December 30, 1992. On
January 3, 1993, Smith sold the shares purchased on December 15, 1992, for $13,000. What amount of
loss from the sale of Core's stock is deductible on Smith's 1992 and 1993 income tax returns?
A) Option B
B) Option C
C) Option A
D) Option D
3. Cobb, an unmarried individual, had an adjusted gross income of $200,000 in 1990 before any IRA
deduction, taxable social security benefits, or passive activity losses. Cobb incurred a loss of $30,000 in
1 990 from rental real estate in which he actively participated. What amount of loss attributable to this
rental real estate can be used in 1990 as an offset against income from nonpassive sources?
A) $30,000
B) $0
C) $12,500
D) $25,000
4. Barkley owns a vacation cabin that was rented to unrelated parties for 10 days during the year for $2,500.
The cabin was used personally by Barkley for three months and left vacant for the rest of the year.
Expenses for the cabin were as follows:
Real estate taxes $1,000
Maintenance and utilities $2,000
How much rental income (loss) is included in Barkley's adjusted gross income?
A) $(1,500)
B) $0
C) $500
D) $(500)
5. Baum, an unmarried optometrist and sole proprietor of Optics, buys and maintains a supply of eyeglasses
and frames to sell in the ordinary course of business. In 1999, Optics had $350,000 in gross business
receipts and its year-end inventory was not subject to the uniform capitalization rules. Baum's 1999
adjusted gross income was $90,000 and Baum qualified to itemize deductions. During 1999, Baum
recorded the following information:
Business expenses:
What amount should Baum report as 1999 net earnings from self-employment?
A) $273,000
B) $243,250
C) $281,750
D) $252,000
Solutions:
| Question # 1 Answer: B | Question # 2 Answer: C | Question # 3 Answer: B | Question # 4 Answer: B | Question # 5 Answer: C |
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