About these questions
These five questions are original. We wrote them in the style of the Part 2 content outline, with the domains in rough proportion to their weight. They are not IRS questions and not real exam questions, and the real exam will word things differently. Like the exam, they are set in calendar year 2025, and Part 2 uses single-answer multiple choice with four options.
How to use these
Try each question without looking at your notes, and commit to an answer before you open the explanation. Then read the explanation even when you were right, because the reason the closest wrong option fails is where the learning is. Note any domain where you slipped and revisit it on the domains explained page. Tax limits change every year, so confirm any figure you rely on in the IRS publication for the right year.
Question 1 (Business Entities and Considerations)
In 2025, Dana contributes a building with an adjusted basis of $150,000 and a fair market value of $240,000 to Larkspur Partnership. The partnership assumes the $100,000 mortgage on the building. After the contribution, Dana’s share of that liability is 30%. How much gain must Dana recognize on the contribution?
- A. $70,000, the share of the mortgage the other partners are treated as assuming
- B. $100,000, the full mortgage assumed by the partnership
- C. $0
- D. $90,000, the built-in gain in the building
Show the answer and explanation
Correct answer: C. When the partnership assumes the mortgage, Dana is treated as receiving a cash distribution equal to the part of the liability that shifts to the other partners, which is 70% of $100,000, or $70,000. Gain arises only if that deemed distribution exceeds her basis in the partnership interest, which starts at $150,000. It does not, so she recognizes nothing, and her basis falls to $80,000. Option A confuses the deemed distribution with taxable gain. The built-in gain in option D is deferred under the contribution rules.
Question 2 (Business Entities and Considerations)
Quarry Lane Inc. has 2,000 shares of a single class of voting stock outstanding. An unrelated individual owns 1,200 shares. In 2025 the corporation redeems 600 of her shares, and no shares are attributed to her under the family attribution rules. How is the redemption treated?
- A. As a sale of the redeemed shares, producing capital gain or loss
- B. As a dividend to the extent of the corporation’s earnings and profits
- C. As a tax-free return of capital that reduces the basis of her remaining shares
- D. As a partial liquidation, because 50% of her shares were redeemed
Show the answer and explanation
Correct answer: A. After the redemption she owns 600 of the 1,400 shares then outstanding, about 42.9%. That is below 50% of the voting power and below 80% of her earlier 60% interest (which is 48%), so the substantially disproportionate redemption test is met and the redemption is treated as an exchange. Option B is the result when no exchange test is met. Option D is wrong because partial liquidation treatment depends on a contraction of the corporation’s business and is available only to noncorporate shareholders; the percentage of one shareholder’s shares redeemed does not decide it.
Question 3 (Business Tax Preparation)
Harbor Print LLC, a partnership, places $55,000 of equipment in service in March 2025 and $95,000 of equipment in November 2025. It places no real property in service during the year, elects out of bonus depreciation, and claims no Section 179 deduction. Which convention applies for 2025?
- A. The mid-quarter convention for the November equipment and the half-year convention for the March equipment
- B. The mid-quarter convention for all of the equipment placed in service during the year
- C. The half-year convention for all of the equipment placed in service during the year
- D. The mid-month convention, because there were two separate purchases
Show the answer and explanation
Correct answer: B. The equipment placed in service in the last quarter is $95,000 of $150,000, about 63%. That is more than 40%, so the mid-quarter convention applies to all of the year’s personal property, including the March equipment. Option A mixes conventions, which the rules do not allow within one year’s property class. Option C would be correct only if the fourth-quarter share were 40% or less. The mid-month convention in option D applies to real property.
Question 4 (Business Tax Preparation)
Wen operates Pine Hollow Electric as a sole proprietorship from a rented shop. On a typical 2025 workday she drives 15 miles from home to the shop, 24 miles from the shop to customer sites and back to the shop, and 15 miles home again. Which miles are deductible business miles?
- A. All 54 miles, because she drives only on workdays
- B. The 24 miles plus the 15 miles home at the end of the day
- C. None of the miles, because the vehicle is also used personally
- D. Only the 24 miles between the shop and customer sites
Show the answer and explanation
Correct answer: D. Travel between a home and a regular place of business is commuting, which is a personal expense in both directions. Driving from the shop to customers and back is business transportation. Option A would apply only if the home were her principal place of business, which the facts do not say. Option C is wrong because personal use of a vehicle calls for allocating its costs, not disallowing business use entirely. Option B counts the trip home, which is still commuting.
Question 5 (Specialized Returns and Taxpayers)
Ilse owns cropland that she leases to a tenant in exchange for a share of the crop. She does not materially participate in the production or management of the crop. For 2025, how does she report the crop share rent?
- A. On Schedule F, and it is subject to self-employment tax
- B. On Form 4835, and it is not subject to self-employment tax
- C. On Schedule E, and it is subject to self-employment tax
- D. On Form 4835, and it is subject to self-employment tax because it is farm income
Show the answer and explanation
Correct answer: B. A landowner who receives a share of the crops or livestock produced by the tenant, and who does not materially participate, reports the income on Form 4835. Income reported there is not self-employment income. Option A describes the owner who does materially participate, who is treated as farming and reports on Schedule F. Option C and option D fail because Schedule E is not the form for crop share rent, and Form 4835 income is not subject to self-employment tax.
More guides for SEE-PART2
- SEE Part 2 Study Plan: 4 and 8 Weeks
- Is SEE Part 2 Hard? An Honest Look
- SEE Part 2 Prerequisites: What You Need
- SEE Part 2 Retakes and EA Renewal Explained
- Is SEE Part 2 Worth It? An Honest Look
- SEE Part 2 Cheat Sheet: Key Facts to Review
- SEE Part 2 vs Part 3: Which First?
- SEE Part 1 vs Part 2: Which First?
Next step
If these felt comfortable, read the exam format page and plan your booking. If a domain felt shaky, try more questions in the SEE Part 2 practice tests.