For Individuals For Educators

Ace your certifications with Practice Exams and AI assistance.

Browse Exams
For Educators
Blog

Privacy Policy
Terms of Service
Cookie Policy
Support

AWS SAA Exam Prep
PMI PMP Exam Prep
CPA Exam Prep
GCP PCA Exam Prep

© 2026 TinyHive Labs. Company number 16262776.

Practice CPA®CPA TCP Practice Exam 5Question 49

Medium1 markMultiple Choice

Area I: Individual Compliance and PlanningTCPIndividual TaxInsurance

CPA · Question 49 · Area I: Individual Compliance and Planning

A taxpayer owns a life insurance policy with a cash surrender value of $50,000 and a basis (premiums paid) of $20,000. The taxpayer surrenders the policy for cash. What is the taxable income?

Answer options:

A.

$0

B.

$50,000

C.

$30,000 Ordinary Income

D.

$30,000 Capital Gain

How to approach this question

1. Gain = Cash Value - Premiums Paid. 2. Character = Ordinary (not sale/exchange of capital asset).

Full Answer

C.$30,000 Ordinary Income✓ Correct

IRC §72(e). The excess of cash surrender value over investment in the contract is ordinary income.

Common mistakes

Treating as capital gain; thinking it's tax-free (only death benefits are tax-free).

Question 48 All questions Question 50

Practice the full CPA TCP Practice Exam 5

68 questions · hints · full answers · grading

Sign up free Take the exam

More questions from this exam

Q01In Year 1, an executive is granted an Incentive Stock Option (ISO) to purchase 1,000 shares of co...Medium Q02A taxpayer has a $500,000 interest-free loan from their employer outstanding for the entire Year ...Medium Q03A taxpayer wants to donate stock held for 5 years to a public charity. The stock has an adjusted ...Medium Q04An individual taxpayer had an AGI of $160,000 in Year 1 and a tax liability of $30,000. In Year 2...Medium Q05A taxpayer invests $50,000 cash for a 20% interest in a partnership. The partnership takes out a ...Hard

View all 68 questions →