EA exam Part 1: Individuals
Free EA Part 1 practice questions
These 15 Enrolled Agent (EA) exam Part 1 questions come from the VantageEA question bank. Each one has the answer, a full explanation and the IRS source behind it. Together they cover filing requirements, income, deductions and credits, tax computation and specialized individual returns.
The questions follow tax law for 2025, the year the current exam tests. Try each one before you open its answer.
15 Part 1 questions with answers
Question 1 · Preliminary Work and Taxpayer Data
Greg is a freelance graphic designer who earned $650 in net self-employment income during 2025. He had no other income. Self-employed individuals face a separate filing threshold of $400 in net self-employment income. How should Greg's filing requirement be determined?
- A.Greg does not need to file because his total income is well below the standard deduction for his filing status
- B.Greg must file a return because his net self-employment income exceeds the self-employment filing threshold
- C.Greg only needs to file if he received a Form 1099 from a client
- D.Greg is not required to file but should do so voluntarily to receive Social Security credits for the year
Show the answer and explanation
Answer: B. Greg must file a return because his net self-employment income exceeds the self-employment filing threshold
Greg must file because his net self-employment income of $650 exceeds the $400 threshold that applies specifically to self-employment income. This is a separate and lower threshold than the general filing requirement based on gross income. Option A is incorrect because the self-employment threshold applies independently of the standard deduction or general filing thresholds. Option C is incorrect because the filing requirement is based on the amount of net SE income, not on whether information returns were issued. Option D is incorrect because the filing requirement is mandatory when the SE income threshold is met, not voluntary.
IRS source: IRC §6017; Pub 17 Ch 1
Question 2 · Preliminary Work and Taxpayer Data
Linda provides financial support for her elderly aunt, Rose. Linda pays $10,000 toward Rose's total support of $18,000. Rose's only income is modest earnings from a part-time job, well below the gross income threshold for qualifying relatives. Rose lives independently in a different city. How should Linda evaluate the support test for claiming Rose as a qualifying relative?
- A.Linda meets the support test because she provides the largest single share of Rose's support
- B.Linda meets the support test because she provides more than half of Rose's total support
- C.Linda does not meet the support test because she provides exactly half of Rose's support
- D.Linda does not meet the support test because she provides less than the required share of Rose's total support
Show the answer and explanation
Answer: B. Linda meets the support test because she provides more than half of Rose's total support
Linda provides $10,000 of Rose's $18,000 total support, which is more than half. The support test for a qualifying relative requires the taxpayer to provide more than 50% of the person's total support. An aunt is a qualifying relationship, so Rose does not need to live with Linda. Rose's income is stated to be below the gross income limit. Option A is wrong because the support test requires more than half, not merely the largest share. If three people each contributed 40%, 35%, and 25%, the 40% contributor would have the largest share but still not meet the more-than-50% requirement. Option C is factually incorrect: $10,000 / $18,000 is more than 50%. Option D is also factually incorrect.
IRS source: IRC 152(d)(1)(C), Pub 501
Question 3 · Income and Assets
Patricia purchased a corporate bond between interest payment dates, paying $1,200 in accrued interest at the time of purchase. At the end of the year, she received a Form 1099-INT showing $3,000 in interest income from that bond. She also holds a zero-coupon corporate bond with $800 of original issue discount (OID) for the year, and she received $2,500 in dividends from a REIT in which she has owned shares for three years. Which statement about Patricia's tax reporting is correct?
- A.She should report $3,000 in taxable interest, $800 in OID income, and treat the $2,500 REIT dividends as qualified dividends eligible for preferential capital gains rates
- B.She should report $1,800 in net taxable interest, defer the OID recognition until the bond is sold or matures, and treat the REIT dividends as qualified dividends
- C.She should report $3,000 in taxable interest, exclude the OID until the zero-coupon bond matures, and treat the REIT dividends as tax-exempt because REITs are pass-through entities
- D.She should report $1,800 in net taxable interest from the corporate bond after subtracting accrued interest paid, $800 in OID income, and the REIT dividends are generally taxed at ordinary rates but may qualify for a Section 199A deduction
Show the answer and explanation
Answer: D. She should report $1,800 in net taxable interest from the corporate bond after subtracting accrued interest paid, $800 in OID income, and the REIT dividends are generally taxed at ordinary rates but may qualify for a Section 199A deduction
This question combines three edge cases. First, when a bond is purchased between interest dates, the buyer pays accrued interest which can be subtracted from the first interest payment received, reducing the 1099-INT amount from $3,000 to $1,800 in net taxable interest. Second, OID on a corporate zero-coupon bond must be included in income annually, even though no cash is received. It cannot be deferred until maturity. Third, REIT dividends are generally NOT qualified dividends and are taxed at ordinary income rates, but they may be eligible for the 20% Section 199A QBI deduction. Option A is wrong because it fails to subtract accrued interest paid and incorrectly treats REIT dividends as qualified. Option B correctly handles accrued interest but incorrectly defers OID and misclassifies REIT dividends as qualified. Option C is wrong because OID must be recognized annually (not deferred) and REIT dividends are not tax-exempt.
IRS source: Pub 550, IRC Section 1272, IRC Section 199A, REIT Dividend Treatment
Question 4 · Income and Assets
Derek and his wife recently adopted a child. Derek, age 34, wants to take a distribution from his Traditional IRA to help cover adoption expenses. How should the qualified birth or adoption exception be applied to Derek's distribution?
- A.Derek can take a penalty-free distribution but it is limited to a specific amount per child per parent
- B.Derek can take an unlimited penalty-free distribution as long as the funds are used for adoption expenses
- C.Derek cannot use the qualified birth or adoption exception because he did not give birth to the child
- D.Derek must wait until the adoption is finalized before taking any distribution
Show the answer and explanation
Answer: A. Derek can take a penalty-free distribution but it is limited to a specific amount per child per parent
Under IRC §72(t)(2)(H), the qualified birth or adoption distribution exception allows up to $5,000 per child per parent to be withdrawn from a retirement account without the 10% early distribution penalty. The distribution must be taken within one year of the birth or finalization of the adoption. The distribution is still subject to regular income tax; only the 10% early distribution penalty is waived. Since Derek and his wife each have an IRA, they could each take up to $5,000 (total $10,000) for the adoption. Option B is wrong because the exception has a clear $5,000 per child per parent limit, not an unlimited amount. Option C is wrong because the exception explicitly applies to both birth and adoption; the name of the exception is 'qualified birth or adoption distribution.' Option D is wrong because the distribution can be taken any time within one year following the finalization of the adoption (or the birth), not only after finalization.
IRS source: IRC §72(t)(2)(H); Publication 590-B
Question 5 · Income and Assets
Victoria is a professional poker player who reports her activity on Schedule C. In 2025, she had $120,000 in documented poker tournament winnings and $135,000 in documented poker losses. She also received $18,000 in Social Security benefits (she is 66 years old) and $4,000 in tax-exempt municipal bond interest. Her ex-husband pays her $2,000 per month under a divorce decree signed in October 2018. All of the following statements about Victoria's tax situation are correct EXCEPT:
- A.Victoria reports her winnings and expenses on Schedule C, but her total gambling-related deductions for 2025 are limited to the amount of her gambling winnings ($120,000)
- B.The $24,000 in alimony Victoria receives is included in her gross income because the divorce decree was executed before 2019
- C.The $4,000 in municipal bond interest, while federally tax-exempt, is included in the calculation of Victoria's provisional income for Social Security purposes
- D.Because Victoria is a professional gambler, she is exempt from the wagering loss limitation rules, allowing her to report a $15,000 net business loss to offset her other income
Show the answer and explanation
Answer: D. Because Victoria is a professional gambler, she is exempt from the wagering loss limitation rules, allowing her to report a $15,000 net business loss to offset her other income
The question tests the limits of gambling deductions for professional gamblers under the Tax Cuts and Jobs Act (TCJA), which is effective for tax years 2018 through 2025. Option D is the incorrect statement (the EXCEPT). Under IRC Section 165(d) as amended by the TCJA, all deductions for gambling activities (including those of professional gamblers on Schedule C) are limited to the extent of gambling winnings. Therefore, Victoria cannot use her excess losses ($15,000) to create a net business loss or offset other income. Option A is correct because it accurately describes this 2025 limitation. Option B is correct because alimony remains taxable to the recipient if the divorce decree was finalized before January 1, 2019 ($2,000/month x 12 months = $24,000). Option C is correct because tax-exempt interest is specifically added back to adjusted gross income when calculating 'provisional income' to determine the taxable portion of Social Security benefits under IRC Section 86.
IRS source: IRC Section 165(d), IRC Section 86, IRC Section 71, Pub 525, Pub 915
Question 6 · Income and Assets
Greg and Heather own a beachfront condo that is their only rental property. In 2025, they rented it at fair market value for 200 days and used it personally for 22 days. Greg, who has a full-time W-2 job, spent 600 hours managing their rental property. Their modified adjusted gross income is well above the phaseout range for the special passive activity loss allowance, and the rental generated a loss after properly allocating expenses. Which statement about their ability to deduct the rental loss is most accurate?
- A.They can deduct the full loss because they actively participated and the loss falls within the special passive activity loss allowance
- B.They can deduct the full loss because Greg qualifies as a real estate professional based on his hours of real estate activity, making the rental nonpassive
- C.They cannot deduct any of the loss because the property is classified as a personal residence under the vacation home rules, so deductions are limited to rental income
- D.They cannot deduct any of the loss currently because their income exceeds the phaseout range for the special passive activity loss allowance, and Greg does not qualify as a real estate professional
Show the answer and explanation
Answer: D. They cannot deduct any of the loss currently because their income exceeds the phaseout range for the special passive activity loss allowance, and Greg does not qualify as a real estate professional
This question tests the interaction of vacation home rules and passive activity loss limitations. First, Greg does not qualify as a real estate professional because the real estate professional test requires more than 750 hours of participation in real property trades or businesses AND more than 50% of personal services in such activities. Greg's 600 hours falls short of the 750-hour threshold. Second, the special $25,000 passive activity loss allowance for rental real estate phases out at higher income levels and is completely eliminated once modified adjusted gross income exceeds the top of the phaseout range. Since their MAGI is stated to be well above this range, the allowance is fully phased out to zero, meaning no current deduction is available for passive rental losses. Option A is wrong because the special allowance is fully phased out at their income level. Option B is wrong because 600 hours does not meet the 750-hour threshold for real estate professional status, and Greg's full-time W-2 job makes it difficult to meet the 50% test. Option C identifies a potential vacation home issue (22 personal days exceeds the applicable threshold for 200 rental days), but this is not the primary reason they cannot deduct the loss. Even without the vacation home limitation, the passive activity loss rules would still prevent a current deduction at their income level.
IRS source: IRC Section 469(i); IRC Section 469(c)(7); IRC Section 280A(d); Pub 527
Question 7 · Deductions and Credits
Maria, a single taxpayer, had an AGI of $50,000 in 2025. She paid $2,500 in qualified medical expenses during the year. Her tax preparer calculated that her AGI floor (7.5% of AGI) is $3,750, meaning her expenses fall below the threshold. Maria asks whether she can carry the unused $2,500 forward to next year or claim it as an above-the-line deduction instead. Which statement correctly describes her situation?
- A.She may deduct the full $2,500 as an itemized deduction because she paid qualified medical expenses
- B.She may carry the $2,500 forward to 2026 if her expenses exceed the floor in that year
- C.She receives no medical expense deduction this year, and the unused amount cannot be carried forward or claimed any other way
- D.She may claim the $2,500 as an above-the-line deduction instead of an itemized deduction
Show the answer and explanation
Answer: C. She receives no medical expense deduction this year, and the unused amount cannot be carried forward or claimed any other way
Under IRC 213(a), medical expenses are deductible only to the extent they exceed 7.5% of AGI. Since Maria's $2,500 in expenses is below her $3,750 floor, she gets no deduction. Option A is wrong because only the excess above the floor is deductible. Expenses below the floor produce no benefit. Option B is wrong because there is no carryforward provision for unused medical expenses. Option D is wrong because medical expenses are an itemized deduction, not an above-the-line deduction.
IRS source: IRC 213(a); Publication 502; Publication 17, Chapter 21
Question 8 · Deductions and Credits
Kevin makes several donations in 2025: $300 to his church, $100 to his neighbor's GoFundMe medical campaign, and $200 to a local 501(c)(4) civic league. Kevin itemizes his deductions. Which of his contributions qualifies as a deductible charitable contribution?
- A.All three contributions qualify because they are all made to help others
- B.Only the $300 to his church, because it is a qualified 501(c)(3) organization
- C.The $300 to his church and the $200 to the civic league, because both are nonprofit organizations
- D.The $300 to his church and the $100 GoFundMe donation, because both serve charitable purposes
Show the answer and explanation
Answer: B. Only the $300 to his church, because it is a qualified 501(c)(3) organization
Only contributions to qualified 501(c)(3) organizations are deductible as charitable contributions under IRC §170. Kevin's church is a qualified 501(c)(3) organization. The GoFundMe donation to an individual is NOT deductible because donations to individuals do not qualify. The 501(c)(4) civic league is a social welfare organization, not a 501(c)(3) charity, so that donation is also not deductible. Option A is wrong because neither the GoFundMe nor the civic league qualifies. Option C is wrong because 501(c)(4) organizations are not qualified charities. Option D is wrong because GoFundMe donations to individuals are not deductible.
IRS source: IRC §170; Pub 526
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Create a free accountQuestion 9 · Deductions and Credits
Rosa, a 35-year-old single mother with one qualifying child, works as a restaurant server earning $28,000 in wages. She also received $900 in interest from a savings account during 2025. Rosa has a valid Social Security Number and is a US citizen. Which of the following best describes Rosa's eligibility for the Earned Income Tax Credit?
- A.Rosa is ineligible because she received investment income
- B.Rosa is eligible because she has earned income, a qualifying child, a valid SSN, and her investment income is below the limit
- C.Rosa is ineligible because restaurant servers cannot claim the EITC
- D.Rosa is eligible only if she files as Head of Household
Show the answer and explanation
Answer: B. Rosa is eligible because she has earned income, a qualifying child, a valid SSN, and her investment income is below the limit
Rosa meets all the basic EITC requirements: she has earned income (wages of $28,000), a qualifying child, a valid SSN, and is a US citizen. Her investment income of $900 is well below the $11,950 limit for 2025. Option A is wrong because the investment income limit is $11,950 and her $900 does not disqualify her. Option C is wrong because there is no occupation-based restriction on EITC. Option D is wrong because EITC can be claimed with Single or HOH filing status; it is not limited to HOH only.
IRS source: IRC Section 32; Pub 596
Question 10 · Deductions and Credits
Diana is single with MAGI of $70,000. Her son Tyler is in his second year at a four-year university. Diana paid $5,000 in qualified tuition and required course materials. Diana's friend tells her the AOTC is only for first-year students, so she missed her chance. Tyler is enrolled at least half-time for one academic period. Which statement correctly describes Diana's AOTC eligibility for Tyler?
- A.Her friend is correct: the AOTC is not available because Tyler is past his first year of college
- B.The AOTC is available because Tyler is within his first four years of postsecondary education and meets the enrollment requirement
- C.The AOTC is available only if Tyler is enrolled full-time for the entire year
- D.The AOTC is not available because Diana's income exceeds the eligibility threshold for single filers
Show the answer and explanation
Answer: B. The AOTC is available because Tyler is within his first four years of postsecondary education and meets the enrollment requirement
The AOTC is available for students in their first four years of postsecondary education, not just the first year. Tyler is in his second year, so he qualifies. The AOTC requires enrollment at least half-time for at least one academic period (Tyler meets this). Diana's MAGI of $70,000 is below the $80,000 phaseout threshold for single filers, so the full credit is available. Option A is wrong because the AOTC covers the first four years. Option C is wrong because half-time enrollment for one academic period is sufficient. Option D is wrong because the phaseout for single filers begins at $80,000.
IRS source: IRC §25A(i); Pub 970
Question 11 · Taxation and Advice
Two single taxpayers each owe $6,000 in tax for 2025. Taxpayer A files 3 months late but pays in full when filing. Taxpayer B files on time but pays the full amount 3 months after the due date. Both have valid reasons but neither qualifies for reasonable cause relief. Which statement correctly compares their penalty situations?
- A.Taxpayer A owes more in total penalties because the failure-to-file penalty rate is significantly higher than the failure-to-pay penalty rate
- B.Both taxpayers owe the same total penalty because the combined rate when both penalties apply is the same 5% per month
- C.Taxpayer B owes more because the failure-to-pay penalty compounds monthly while the failure-to-file penalty does not
- D.Neither taxpayer owes any penalty because the tax owed is below the estimated tax threshold
Show the answer and explanation
Answer: A. Taxpayer A owes more in total penalties because the failure-to-file penalty rate is significantly higher than the failure-to-pay penalty rate
Taxpayer A (3 months late filing, pays at filing): The failure-to-file penalty is 5% per month, but is reduced by the concurrent failure-to-pay penalty of 0.5% per month. So Taxpayer A pays a net 4.5% FTF + 0.5% FTP = 5% per month for 3 months = 15% of $6,000 = $900. Taxpayer B (files on time, pays 3 months late): Only the failure-to-pay penalty applies at 0.5% per month for 3 months = 1.5% of $6,000 = $90. Taxpayer A owes $900 vs. Taxpayer B's $90, making Option A correct. Option B is wrong because the 5% combined rate only applies when BOTH penalties run simultaneously for Taxpayer A; Taxpayer B only faces the 0.5% FTP rate. Option C is wrong because neither penalty compounds (they are flat percentage rates per month). Option D is wrong because the $1,000 estimated tax threshold relates to the underpayment penalty for estimated taxes, not to filing and payment penalties.
IRS source: IRC Section 6651(a)(1), IRC Section 6651(a)(2), IRC Section 6651(c)
Question 12 · Taxation and Advice
Jennifer is a single filer with regular taxable income of $200,000. She claimed a $10,000 state and local tax (SALT) deduction on Schedule A. Her tax advisor is now preparing Form 6251 to calculate her Alternative Minimum Taxable Income (AMTI). Jennifer asks, "Since I already deducted my state taxes on my regular return, do I get to keep that deduction for AMT purposes?" How should her SALT deduction be treated when computing AMTI?
- A.Only the portion of SALT exceeding the cap must be added back when computing AMTI
- B.The entire $10,000 SALT deduction must be added back as an AMT adjustment, making it unavailable for AMT purposes
- C.SALT deductions are treated identically for both regular tax and AMT: no adjustment is needed
- D.Only state income taxes must be added back; property taxes remain deductible for AMT
Show the answer and explanation
Answer: B. The entire $10,000 SALT deduction must be added back as an AMT adjustment, making it unavailable for AMT purposes
B is correct. State and local tax deductions are a major preference item that must be completely added back when computing Alternative Minimum Taxable Income. This adjustment exists because the AMT system was designed to ensure that taxpayers cannot use certain itemized deductions (including SALT) to significantly reduce their tax liability. Even though Jennifer properly claimed the SALT deduction for regular tax purposes, the entire $10,000 must be added back to her regular taxable income when calculating AMTI. This is one of the most common AMT adjustments and frequently causes taxpayers in high-tax states to owe AMT. A is incorrect because there is no partial add-back: the full SALT amount is disallowed, regardless of whether it exceeds any cap. C is incorrect because SALT is specifically treated differently under the two systems; it's one of the key adjustments that defines the AMT. D is incorrect because all components of SALT (state income taxes, sales taxes, and property taxes) must be added back for AMT purposes.
IRS source: IRC Section 56(b)(1)(A)(ii); Form 6251 Line 2a
Question 13 · Specialized Returns and Taxpayers
Eleanor died in 2025, and her will leaves her entire $18 million estate in a trust for the benefit of her grandchildren, bypassing her children entirely. Eleanor had already used her full estate tax exemption through prior lifetime gifts. Her estate has not used any generation-skipping transfer tax (GSTT) exemption. All of the following statements about the tax consequences are correct EXCEPT:
- A.The transfer to the grandchildren's trust is subject to the generation-skipping transfer tax because the grandchildren are skip persons (two or more generations below Eleanor)
- B.The GSTT is imposed at a flat rate of 40%, the same rate as the estate tax
- C.The GSTT exemption can shelter a portion of the transfer, and any amount exceeding the exemption is subject to the 40% GSTT in addition to any estate tax owed
- D.The GSTT replaces the estate tax on this transfer, so the estate owes only the 40% GSTT and no additional estate tax
Show the answer and explanation
Answer: D. The GSTT replaces the estate tax on this transfer, so the estate owes only the 40% GSTT and no additional estate tax
Option D is the INCORRECT statement. The generation-skipping transfer tax does NOT replace the estate tax. It is an additional tax imposed on top of the estate tax. When a transfer skips a generation (e.g., from grandparent directly to grandchildren), both the estate tax and the GSTT may apply. Since Eleanor used her full estate tax exemption through prior lifetime gifts, her $18 million estate is subject to the 40% estate tax. Additionally, since the transfer goes to skip persons (grandchildren), the GSTT applies to the extent the GSTT exemption does not shelter the transfer. The GSTT exemption for 2025 matches the estate tax exemption at $13.99 million. Option A is correct because grandchildren are indeed skip persons under IRC 2613. Option B is correct because the GSTT rate is a flat 40% under IRC 2641. Option C is correct because the GSTT exemption can shelter a portion of the transfer, with the excess subject to the additional 40% GSTT.
IRS source: IRC 2601; IRC 2641; IRC 2613; Pub 559
Question 14 · Specialized Returns and Taxpayers
Marcus owns a small landscaping business as a sole proprietor but does not perform any work in the business. He has a full-time manager who handles all operations. Marcus spent only 30 hours on the business during the year and it generated a $15,000 loss. He has no other passive income. How should this loss be treated on Marcus's tax return?
- A.The loss is fully deductible against his W-2 wages
- B.The loss is suspended and carried forward because it is a passive activity loss with no passive income to offset
- C.The loss can offset his portfolio income from dividends and interest
- D.The loss is permanently disallowed because Marcus did not work in the business
Show the answer and explanation
Answer: B. The loss is suspended and carried forward because it is a passive activity loss with no passive income to offset
Because Marcus did not materially participate in the landscaping business (he spent only 30 hours and meets none of the seven material participation tests), it is classified as a passive activity. Under IRC Section 469(a), passive activity losses can only offset passive activity income. Since Marcus has no passive income, the $15,000 loss is suspended and carried forward indefinitely until he has passive income or disposes of the activity in a fully taxable transaction. Option A is wrong because passive losses cannot offset active income (wages). Option C is wrong because portfolio income (dividends, interest) is a separate category and cannot be offset by passive losses. Option D is wrong because the loss is not permanently disallowed: it is suspended and carried forward, not lost.
IRS source: IRC Section 469(a); Pub 925
Question 15 · Specialized Returns and Taxpayers
Maria, a US citizen, moved to Italy in January 2025 and has been living and working there full-time ever since. She earns a salary from an Italian employer and also receives $5,000 in dividends from her US brokerage account. Maria wants to use the Foreign Earned Income Exclusion (FEIE) to reduce her US tax. Which of the following best describes what income is eligible for the FEIE?
- A.Both her Italian salary and her US dividends qualify for the FEIE
- B.Only her Italian salary qualifies for the FEIE; dividends are investment income and are not eligible
- C.Only her US dividends qualify because they are passive income earned while she lives abroad
- D.Neither her salary nor dividends qualify because she must live abroad for at least two full years first
Show the answer and explanation
Answer: B. Only her Italian salary qualifies for the FEIE; dividends are investment income and are not eligible
Under IRC 911(d)(2), foreign earned income includes wages, salaries, professional fees, and self-employment income earned while working abroad. It does NOT include investment income such as dividends, interest, capital gains, pensions, annuities, or Social Security benefits. Maria's Italian salary is foreign earned income eligible for the FEIE, but her $5,000 in US dividends is investment income and cannot be excluded. Option A is wrong because dividends are not earned income. Option C reverses the rule entirely. Option D is wrong because there is no two-year requirement; the bona fide residence test requires residence for an uninterrupted period that includes one entire tax year.
IRS source: IRC 911(d)(2), Pub 54
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