CPA Regulation (REG) : Individual Adjustments & Deductions

Study concepts, example questions & explanations for CPA Regulation (REG)

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Example Questions

Example Question #1 : Individual Adjustments & Deductions

Which of the following amounts represents an adjustment to adjusted gross income (AGI) for the current tax year?

Possible Answers:

Alimony paid to a former spouse pursuant to a divorce agreement executed in 2019.

Alimony paid to a former spouse pursuant to a divorce agreement executed in 2014.

Child support paid to a former spouse pursuant to a divorce agreement executed in 2019.

Child support paid to a former spouse pursuant to a divorce agreement executed in 2019.

Correct answer:

Alimony paid to a former spouse pursuant to a divorce agreement executed in 2014.

Explanation:

For a divorce finalized on or before Dec. 31, 2018, alimony received is included in gross income. For divorces finalized after this date, alimony is not included in gross income. All other items are regularly excluded from AGI.

Example Question #2 : Individual Adjustments & Deductions

The self-employment tax is:

Possible Answers:

Fully deductible as an itemized deduction.

Not deductible.

One-half deductible from gross income in arriving at adjusted gross income.

Fully deductible in determining net income from self-employment.

Correct answer:

One-half deductible from gross income in arriving at adjusted gross income.

Explanation:

Self-employment tax is only partially deductible (50%), and is calculated as part of determining AGI. 

Example Question #3 : Individual Adjustments & Deductions

Which of the following is not a deduction to arrive at adjusted gross income?

Possible Answers:

Mortgage interest.

Trade or business expenses.

Capital losses in excess of capital gains.

Alimony payments pursuant to a divorce settlement finalized on or before 12/31/18.

Correct answer:

Mortgage interest.

Explanation:

Mortgage interest is only included as a deduction, or a “below the line” reduction of a tax liability. All of the others are “above the line” reductions of AGI, prior to the standard or itemized deduction.

Example Question #4 : Individual Adjustments & Deductions

The self employment tax is:

Possible Answers:

Fully deductible from gross income in arriving at adjusted gross income

Not deductible

Fully deductible in determining net income from self-employment

One half deductible from gross income in arriving at adjusted gross income

Correct answer:

One half deductible from gross income in arriving at adjusted gross income

Explanation:

One half of the self-employment tax is deductible to arrive at adjusted gross income. These other options are partially or not deductible.

Example Question #5 : Individual Adjustments & Deductions

Of the following, which is not an adjustment to arrive at adjusted gross income?

Possible Answers:

Alimony paid pursuant to a divorce settled on or before December 31, 2018

Qualified mortgage interest paid

Self-employed FICA (50%)

Self-employed health insurance

Correct answer:

Qualified mortgage interest paid

Explanation:

The qualified mortgage interest paid is deductible on Sch A as an itemized deduction.

Example Question #6 : Individual Adjustments & Deductions

Based on the TCJA of 2017, which statement is correct? Included in taxable gross income is:

Possible Answers:

Child support received as of a divorce in 2015

Alimony payments received as of a divorce in 2015

Child support received as of a divorce in 2019

Alimony payments received as of a divorce in 2019

Correct answer:

Alimony payments received as of a divorce in 2015

Explanation:

Child support no matter what year is not included in AGI. Alimony received based on an agreement on or before 12/31/2018 would be included.

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