Exam 16: Investment and Personal Financial Planning

If an investor sells some of the securities in a block but can't identify which ones were sold, she is presumed to have sold the securities with the latest acquisition date.

In 2001, Mrs. Qualley, contributed $100,000 in exchange for 1,000 shares of Little Corporation, which is a qualified small business. This year, Mrs. Qualley's only capital transaction was the sale of the 1,000 shares of Little qualified small business stock for $180,000. If Mrs. Qualley's marginal rate on ordinary income is 37%, compute the income tax on her capital gain from this sale.

Mr. Adams paid $53,500 in premiums on a whole life insurance policy. When he canceled the policy, he received its cash surrender value of $61,600. He must recognize $61,600 income as a result of the cancellation.

Income generated from an investment activity is primarily attributable to invested capital rather than the owner's personal involvement in the activity.

Mr. Quinn, a single taxpayer, recognized a $900 net short-term capital gain and a $1,380 long-term capital gain this year. Which of the following statements is false?

Which of the following statements about investment interest expense is true?

Fifteen years ago, Lenny purchased an insurance policy on his own life. The policy provides a $3 million death benefit. Lenny has paid $682,000 of premiums, and the cash surrender value of the policy is $725,000. He plans to liquidate the policy to generate cash for his business. If Lenny's marginal tax rate is 35%, how much after-tax cash will the liquidation generate?

Ruth Darma is a shareholder who is not involved in the day-to-day activities of an S corporation. Her interest in the business is a passive activity.

Material participation in a business means that the individual is involved in the day-to-day operations on a regular, continuous, and substantial basis.

Which of the following are included in a decedent's taxable estate?

The interest earned on investments in U.S. debt obligations is subject to state taxation.

Life insurance proceeds are includible in the taxable estate of the decedent if the decedent was the owner of the policy.

Ms. Poppe, a single taxpayer, made three gifts this year: $6,300 cash to her niece; $50,000 cash to Yale University; and 5,000 acres of land to her brother. Ms. Poppe's tax basis in the land was $400,000, and its fair market value of date of gift was $615,000. Compute Ms. Poppe's taxable gifts for the year.

Bess gave her grandson ten acres of undeveloped land. Bess' tax basis in the land was $35,000, and its fair market value at date of gift was $175,000. Two years after receiving the land, the grandson sold it for $200,000. Compute his recognized gain on sale.

Gain on sale of qualified small business stock is taxed at a maximum rate of 15%.

An owner of a life insurance policy that includes an investment element must recognize income equal to the annual increase in the policy's cash surrender value.

Mr. and Mrs. Nelson operate a small business as a sole proprietorship. This year, they have the following tax information. \begin{array}{llr} \text { Net profit from sole proprietorship } &\$50,000\\ \text { Deduction for \mathrm{SE} tax } &\$3,533\\ \text { Dividends } &\$900\\ \text { Net income from rental property } &\$2,780\\ \text {Loss from limited partnership } &\$(6,000)\\\end{array} Compute Mr. and Mrs. Nelson's AGI.

Which of the following statements about annuity contracts is true?

Mr. and Mrs. Perry own stock in an S corporation, which is their only passive activity. They have an $8,200 passive activity loss carryforward into this year. This year, the Perrys are allocated a $1,600 share of corporate ordinary business income. In December of this year, they recognize a $3,500 long-term capital gain on the sale of their entire stock interest. How much of their loss carryforward can the Perrys deduct this year?

In 2019, Mr. Ames, an unmarried individual, made a gift of real estate to his nephew. Compute the amount subject to the federal gift tax in each of the following situations.FMV of the real estate was $1.8 million, and the transfer was Mr. Ames' first taxable gift.FMV of the real estate was $17.25 million and the transfer was Mr. Ames' first taxable gift.FMV of the real estate was $12.3 million. Two years ago, Mr. Ames made his first taxable gift of marketable securities with a $3.92 million FMV in excess of the annual exclusion.