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Alistair and Ling Parks are married and file jointly. Their MAGI for this year is $72,000. They have two dependent children: Hana, who is completing her second year of college and is enrolled full-time in a degree program with no felony drug conviction, and Jiro, who is a licensed electrician taking a continuing education course to improve his job skills at a local community college. Alistair and Ling paid $4,500 in qualified tuition for Hana and $3,000 for Jiro’s course. What is the maximum combined education credit the Parks may claim for this year?

Byron purchases 200 shares of stock for $8,000 on March 5. On March 5 of the following year, Byron sells all 200 shares for $9,500. Which of the following best describes the tax consequence of this transaction?

Don was diagnosed with a terminal illness and certified by a physician as having a life expectancy of less than 24 months. Six months after certification, Don sold a life insurance policy with a $750,000 face value to a viatical settlement provider for $510,000. Don had paid $80,000 in cumulative premiums. How much of the $510,000 in proceeds must Don include in gross income?

Janie, a widow, elected to receive the proceeds of a $100,000 face value insurance policy on the life of her deceased husband in ten annual installments of $11,900 each including interest (beginning last year). In the current year, she received $11,900, which included $1,900 interest. Janie dies in December of the current year after collecting the current year’s payment. What is the amount subject to income tax on her final tax return?

Trenton owns a country home that he sometimes rents out to other people. Which of the following statements regarding Trenton’s rental activity is correct?

A taxpayer purchases equipment for use in a trade or business for $10,000 and takes $4,000 in depreciation deductions, resulting in an adjusted basis of $6,000. The taxpayer sells the equipment for $8,000. What is the tax treatment of the $2,000 gain?

Leona is 68 years old and single. What is the largest amount of adjusted gross income that Leona can have for 2026 without being required to file a tax return?

Chapter 1 identifies three separate and distinct federal tax systems that are relevant to financial planning. Which of the following correctly identifies all three?

Leonard and Priya’s divorce was final on June 6, 2024. Under the divorce decree, Priya agreed to pay Leonard $2,500 per month until the earlier of Leonard’s death or remarriage. Their daughter Penny will live with Leonard. Which of the following correctly describes the tax treatment of the payments? 

In Year 8, Andre had a Section 1231 gain of $12,000. In the prior years, Andre had the following Section 1231 transactions: Year Net Section 1231 Transaction Year 7 $5,000 Section 1231 Loss Year 6 $3,000 Section 1231 Loss Year 5 No Section 1231 Transaction Year 4 No Section 1231 Transaction Year 3 No Section 1231 Transaction Year 2 $7,000 Section 1231 Gain Year 1 $4,000 Section 1231 Gain How will Andre’s Section 1231 gain be taxed in Year 8?