- How much of the 2005 credit carryforward may be claimed on the 2025 return?
Answer: $12,000, because general business credit carryforwards are treated as used before current-year credits and the limitation is not prorated.
IRC §§ 38(a) and 39(a). Choice A is correct. The general business credit for the tax year is the sum of carryforwards, current-year credits, and carrybacks, and carryforwards, which IRC § 38(a) lists first, are used before current-year credits. The 2005 credit is in its 20th and final carryover year under IRC § 39(a), so the $25,000 limitation is applied first to the $12,000 carryforward, and all $12,000 is allowable for 2025. That leaves $13,000 of the limitation for the $20,000 current-year credit; the remaining $7,000 may be carried back or forward under the general carryover rules. Choice B incorrectly prorates the limitation between the carryforward and the current-year credit. Choice C reverses the statutory ordering. Choice D miscounts the carryforward period, because a 2005 unused credit may be carried through 2025.
- How is Ava's $46,000 allocable loss treated on her 2025 federal income tax return?
Answer: Ava may deduct $18,000 in 2025; the remaining $28,000 is carried forward and may be deducted in a later year when her at-risk amount increases sufficiently.
IRC § 465(a)(1) limits a loss from an activity to the amount the taxpayer has at risk. Ava's at-risk amount is only $18,000, so only $18,000 of the $46,000 loss is allowable in 2025. Under IRC § 465(a)(2), the $28,000 disallowed loss is treated as a deduction attributable to the same activity in the next taxable year, so it carries forward and is allowed when her at-risk amount is sufficient. Choice B ignores the at-risk limit and relies only on basis and general-partner status. Choice C misstates the carryover rule as a permanent disallowance. Choice D mischaracterizes the suspended loss as a capital loss carryover; it remains a suspended loss from the activity, not a capital loss carryover.
- Monifa, a single taxpayer, owns a limited partnership interest that is a passive activity to her. The activity has $48,000 of suspended losses from prior years. In 2025, she sells her entire interest in a fully taxable transaction to an unrelated buyer and recognizes a $12,000 gain. She has $150,000 of wages and no income or loss from any other passive activity. What amount of the suspended loss is treated as not from a passive activity and may be used to offset her wage income?
Answer: $36,000
IRC § 469(g)(1) provides that when a taxpayer disposes of the taxpayer's entire interest in a passive activity in a fully taxable transaction, the suspended losses from that activity are released. The excess of the $48,000 suspended losses over the $12,000 recognized gain is $36,000, and that excess is treated as a loss not from a passive activity, so it may offset Monifa's wage income. The remaining $12,000 is allowed as a passive activity loss against the $12,000 disposition gain. Choice A ($0) ignores the disposition rule and treats the suspended losses as remaining suspended. Choice B ($12,000) treats only the gain-equivalent amount as available against wages, but that portion is allowed as a passive loss against the gain. Choice D ($48,000) treats the entire suspended loss as nonpassive, overlooking the statutory reduction for the recognized gain.
- Which statement is correct regarding the treatment of the carryover on Priya's 2025 return?
Answer: The $10,000 short-term loss carryover is netted with the $10,000 long-term capital gain, so Priya reports no net capital gain or loss for 2025 and has no capital loss carryover to 2026.
IRC § 1212(b) treats a short-term capital loss carryover as a short-term capital loss in the carryover year. Under the capital gain and loss netting rules of IRC § 1222, the $10,000 net short-term capital loss is combined with the $10,000 net long-term capital gain, leaving no net capital gain or loss for 2025 and no amount to carry to 2026. Choice A misstates the rule: a short-term loss carryover is not confined to offsetting short-term gains because the netting process allows it to absorb net long-term gain. Choice B incorrectly imposes a same-character current-year gain requirement. Choice D misstates the character; the carryover is not recharacterized as long-term.
- Rosa, a single taxpayer, operates a consulting business as a sole proprietor. For 2025, the business had gross income of $250,000 and business deductions of $600,000, and no other item enters the excess business loss calculation. She also had $500,000 of interest and dividend income and no prior-year loss carryovers. What amount of the business loss is treated as an NOL carryover to 2026?
Answer: $37,000
IRC § 461(l) limits the current-year deduction of an excess business loss. For 2025, the excess business loss threshold for a single taxpayer is $313,000. Rosa's aggregate business deductions are $600,000 and her aggregate business gross income is $250,000, so the excess is $600,000 − ($250,000 + $313,000) = $37,000. That $37,000 is disallowed for 2025 and is treated as an NOL carryover to 2026; the remaining $313,000 business loss is allowed in 2025. Choice A ($0) ignores the excess business loss threshold and would allow the entire $350,000 loss currently. Choice C ($313,000) is the amount of business loss allowed in 2025, not the carryover. Choice D ($350,000) is the total business loss before applying § 461(l) and treats the whole loss as the carryover.
- How must the taxpayer compute the 2025 charitable contribution deduction?
Answer: Deduct the 2025 cash contributions first and then the stock carryover; the carryover remains subject to the capital gain property percentage limit and may be carried over until used or the carryover period expires.
IRC §§ 170(b)(1), 170(d)(1). Choice B is correct. A charitable contribution carryover is allowed in the later year after all contributions actually made in that later year are deducted. The carryover also keeps the limitation category of the original contribution, so a carryover of appreciated capital gain property remains subject to the capital gain property percentage limit. Choice A wrongly recharacterizes the carryover as a cash contribution; Choice C reverses the required ordering and falsely suggests the carryover is forfeited; Choice D misstates the treatment of unused current-year cash contributions to a public charity, which would begin their own carryover rather than be permanently lost.
- What is the correct treatment of the minimum tax credit on the 2025 return?
Answer: $16,000 of the credit is allowed, and the remaining $64,000 carries forward indefinitely to future tax years.
IRC § 53(c). Choice C is correct. The minimum tax credit is allowed to the extent regular tax liability exceeds tentative minimum tax, here $28,000 minus $12,000, or $16,000. The credit does not require a current-year AMT liability and cannot reduce regular tax below tentative minimum tax; unused minimum tax credit carries forward indefinitely. Choice A confuses the purpose of the credit; Choice B applies the general business credit's 20-year limit; Choice D ignores the tentative minimum tax floor and treats the credit as refundable.
- What is the correct treatment of the business loss on the 2025 return?
Answer: $626,000 is deductible in 2025; the remaining $224,000 is treated as a net operating loss carryover to 2026.
IRC §§ 172, 461(l). Choice D is correct. For 2025, a noncorporate taxpayer's excess business loss is the amount by which business deductions exceed the sum of business gross income plus the $626,000 MFJ threshold. Thus, $224,000 of the $850,000 loss is an excess business loss; it is not deductible in 2025 and is treated as a net operating loss carryover to 2026. The remaining $626,000 business loss is allowed against the couple's nonbusiness income. Choice A ignores the § 461(l) threshold; Choice B treats a statutory carryover as permanently lost; Choice C caps the allowed deduction by nonbusiness income, which § 461(l) does not do.
- What is the correct treatment of the $700,000 Schedule C loss on their 2025 federal income tax return?
Answer: The $74,000 excess business loss is disallowed for 2025 and is carried over to 2026 as a net operating loss carryover; the remaining $626,000 of the loss is allowed.
Under IRC § 461(l), the excess business loss of a noncorporate taxpayer is the amount by which aggregate business deductions exceed aggregate business income plus the applicable threshold. For married filing jointly in 2025, the threshold is $626,000. The business deductions are $700,000 and business income is $0; the couple's W-2 wages are not business income for this purpose because the definition excludes the trade or business of performing services as an employee. The excess business loss is therefore $74,000. That amount is disallowed and, under IRC § 461(l)(2), is treated as an NOL carryover to 2026; the remaining $626,000 of the loss is allowed for 2025. Choice A ignores the excess business loss limitation. Choice B misstates the threshold: it applies the $313,000 unmarried/MFS threshold, producing a $387,000 excess, but the $626,000 MFJ threshold controls. Choice D misstates the NOL carryback rule; this 2025 business loss generally cannot be carried back, and the excess is carried to 2026.
- Which of the following is correct regarding the $4,000 unused 2025 foreign tax credit?
Answer: It may be credited in 2026 only if the taxpayer also has general-category foreign-source income, because carryovers stay in the same separate category.
IRC §§ 904(c), 904(d). Choice C is correct. An unused foreign tax credit is carried back one year and forward ten years, and with no 2024 room the $4,000 is carried forward. The foreign tax credit is computed separately for separate limitation categories, and an unused credit carryover keeps the category of the taxes that created it. The $4,000 general-category carryover cannot be applied to 2026 tax on passive-category income, even though the overall limitation for that year is large enough. Choice A ignores the separate-category rule; Choice B incorrectly denies all foreign tax credits on passive-category income; Choice D invents a gross-income allocation rule that does not govern carryover application.
- What amount of the 2024 charitable contribution carryover, if any, remains available after 2025?
Answer: $15,000
Under IRC § 170(d)(1), a charitable contribution carryover may be used in the five succeeding tax years, and current-year contributions are deducted before the carryover is applied to the remaining limit. Marta's $10,000 current-year contribution uses $10,000 of the $25,000 limit, leaving $15,000 of the limit to absorb the carryover. She therefore uses $15,000 of the $30,000 carryover in 2025 and $15,000 remains available, making Choice D correct. Choice A results from applying the entire $25,000 limit to the carryover and ignoring the current-year contribution. Choice B results from incorrectly subtracting the $10,000 current-year contribution from the $30,000 carryover instead of applying the remaining limit to the carryover. Choice C ignores the fact that $15,000 of the carryover is used in 2025.
- What is the correct treatment of the $74,000 of suspended passive losses for 2025?
Answer: The full $74,000 is deductible in 2025 because the entire interest was disposed of in a fully taxable transaction to an unrelated person, and the losses are no longer treated as passive.
IRC § 469(g)(1). Choice A is correct. Suspended passive losses from an activity become deductible when the taxpayer disposes of the taxpayer's entire interest in the activity in a fully taxable transaction to an unrelated person. The losses are then treated as not from a passive activity, so they may offset nonpassive income such as wages without a passive-income source. Choice B misstates the release as limited to the disposition gain; Choice C treats the released loss as an itemized deduction, but passive losses are not itemized deductions; Choice D imposes a material-participation condition that § 469(g) does not require for a complete taxable disposition.
- How are the $48,000 of suspended passive losses treated on Omar's 2025 federal income tax return?
Answer: The $48,000 is not allowed in 2025 because the sale is to a related party; the suspended losses continue to be subject to the passive activity loss rules.
IRC § 469(g) generally allows suspended passive losses when a taxpayer disposes of the entire interest in a passive activity in a fully taxable transaction. Under the related-party exception to that rule, a transfer to a related party is not treated as a disposition for this purpose; a brother is a related party under IRC § 267(b) and (c)(4). Therefore the suspended losses are not allowed in 2025 and remain subject to the passive activity loss rules, with possible allowance when the related party later disposes of the interest to an unrelated party. Choice A ignores the related-party exception. Choice C misstates the treatment on a related-party sale and incorrectly adds a permanent disallowance. Choice D mischaracterizes suspended passive losses as capital loss carryovers; the transfer does not recharacterize them.
