Question 1

The interest earned on a state or local government bond is exempt from federal taxation.

Accepted Answer

A) True 
 B)False

Question 2

Lana owns 50 shares of stock qualifying as Section 1244 stock. If she sells the stock to George, he can also treat the stock as Section 1244 stock.

Accepted Answer

A) True 
 B)False

Question 3

Brokerage fees paid when stock is purchased are added to the basis of the stock.

Accepted Answer

A) True 
 B)False

Question 4

The kiddie tax limits the tax savings from a transfer of income-producing property to a minor child by taxing a portion of such income at the tax rates applying to estates and trusts.

Accepted Answer

A) True 
 B)False

Question 5

Investment expenses are an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 6

Ms. Adair, a single individual, has $218,000 AGI, which includes $43,000 net investment income. Compute Ms. Adair's unearned income Medicare contribution tax.

Accepted Answer

A)  $0 
B)  $684 
C)  $817 
D)  $1,634 
A)  $0 
B)  $684 
C)  $817 
D)  $1,634

Question 7

Mr. Vernon owns stock in two S corporations, Able Corporation and Benson Inc. This year, Mr. Vernon had the following income and loss items. $\begin{array}{ll}
\text { Salary } & \$ 74,000 \
\text { Business income from Able } & \$ 20,000 \
\text { Business loss from Benson } & \$(33,000)
\end{array}$
 If Vernon materially participates in Able's business but not in Benson's business, compute his AGI.

Accepted Answer

A)  $94,000 
B)  $74,000 
C)  $61,000 
D)  $41,000 
A)  $94,000 
B)  $74,000 
C)  $61,000 
D)  $41,000

Question 8

Individual taxpayers are not allowed to deduct capital losses in excess of capital gains.

Accepted Answer

A) True 
 B)False

Question 9

Ten years ago, Elaine paid $10 per share for 2,000 shares of Lazlo common stock. This year, Elaine learned that Lazlo is in bankruptcy and can pay only 40% of its outstanding debt to its creditors. What are the tax consequences to Elaine of Lazlo's bankruptcy?

Accepted Answer

A)  $20,000 long-term capital loss 
B)  $12,000 long-term capital loss 
C)  $20,000 ordinary loss 
D)  No gain or loss 
A)  $20,000 long-term capital loss 
B)  $12,000 long-term capital loss 
C)  $20,000 ordinary loss 
D)  No gain or loss

Question 10

Mr. and Mrs. Sturm actively manage an office building that they purchased in January 1997. This year, the office building generated a $68,000 net loss. The couple's income items consisted of $72,300 salary and $14,000 interest and dividend income. How much of the rental loss is deductible this year?

Accepted Answer

A)  $25,000 
B)  $14,000 
C)  $0 
D)  $68,000 
A)  $25,000 
B)  $14,000 
C)  $0 
D)  $68,000

Question 11

Mr. and Mrs. Bolt's joint return reports $267,500 AGI, which includes $13,300 net investment income. Compute the couple's unearned income Medicare contribution tax.

Accepted Answer

A)  $0 
B)  $665 
C)  $505 
D)  None of these choices are correct. 
A)  $0 
B)  $665 
C)  $505 
D)  None of these choices are correct.

Question 12

An owner of undeveloped land held for investment must capitalize the property taxes paid on the land each year.

Accepted Answer

A) True 
 B)False

Question 13

Three years ago, Mr. Lewis paid $40,000 for a newly issued corporate bond with a $50,000 stated redemption value. This year, he sold the bond for $43,900. Through date of sale, Mr. Lewis recognized $940 of the original issue discount (OID) as accrued interest income. Compute his gain or loss on sale.

Accepted Answer

A)  $3,900 long-term capital gain 
B)  $3,900 ordinary income 
C)  $2,960 ordinary income 
D)  $2,960 long-term capital gain 
A)  $3,900 long-term capital gain 
B)  $3,900 ordinary income 
C)  $2,960 ordinary income 
D)  $2,960 long-term capital gain

Question 14

Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

Accepted Answer

A)  $0 
B)  $19,040 
C)  $19,700 
D)  $15,000 
A)  $0 
B)  $19,040 
C)  $19,700 
D)  $15,000

Question 15

Last year, Mr. Margot purchased a limited interest in a business partnership, which is his only passive activity. Last year, he was allocated $14,900 of the partnership's ordinary business loss. This year, he was allocated $7,700 of the partnership's ordinary business income. Which of the following statements is false?

Accepted Answer

A)  Last year, Mr. Margot could not deduct any of his allocated partnership loss. 
B)  This year, Mr. Margot can deduct $7,700 of last year's loss. 
C)  Mr. Margot has a $7,200 passive activity loss carryforward into next year. 
D)  None of these statements are false. 
A)  Last year, Mr. Margot could not deduct any of his allocated partnership loss. 
B)  This year, Mr. Margot can deduct $7,700 of last year's loss. 
C)  Mr. Margot has a $7,200 passive activity loss carryforward into next year. 
D)  None of these statements are false.

Question 16

Mr. Johnson borrowed money to buy Chicago municipal bonds. This year, he paid $2,000 interest on his loan and earned $3,500 interest income from the bonds. None of the interest expense is deductible.

Accepted Answer

A) True 
 B)False

Question 17

In 2018, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest year-end dividends in additional shares. In 2018 and 2019, she received Form 1099s reporting the following. $\begin{array}{rrrrr}
&\text { Reinvested } & \text { Shares } & \text { Price per } & \text { Total shares } \
&\text { dividends } & \text { purchased } & \text { share } & \text { owned }\
2018 & \$ 4,800 & 240 & \$ 20 & 3,240 \
2019 & \$ 3,150 & 150 & \$ 21 & 3,390
\end{array}$
 If Mrs. Owens sells her 3,390 shares in 2020 for $22 per share, compute her recognized gain.

Accepted Answer

A)  $24,580 
B)  $19,780 
C)  $16,630 
D)  $0 
A)  $24,580 
B)  $19,780 
C)  $16,630 
D)  $0

Question 18

The federal taxable estate of a decedent can exceed the value of the probate estate.

Accepted Answer

A) True 
 B)False

Question 19

This year, Mr. Chester gave $50,000 to an old friend who has no legal obligation to repay the money. The entire $50,000 is a taxable gift.

Accepted Answer

A) True 
 B)False

Question 20

Ms. Mollani owns stock in two S corporations, Aloha and Honu. This year, she had the following income and loss items:
 $\begin{array}{ll}
\text { Salary } & \$ 45,000 \
\text { Business income from Aloha } & \$ 12,000 \
\text { Business loss from Honu } & \$(17,000)
\end{array}$ Compute Ms. Mollani's AGI under each of the following assumptions.She materially participates in Aloha's business but not in Honu's business.She materially participates in Honu's business but not in Aloha's business.She materially participates in both corporate businesses.She does not materially participate in either business.

Accepted Answer

a. $57,000 AGI = $45,000 + $12,000 (no d

The interest earned on a state or local government bond is exempt from federal taxation.

Lana owns 50 shares of stock qualifying as Section 1244 stock. If she sells the stock to George, he can also treat the stock as Section 1244 stock.

Brokerage fees paid when stock is purchased are added to the basis of the stock.

The kiddie tax limits the tax savings from a transfer of income-producing property to a minor child by taxing a portion of such income at the tax rates applying to estates and trusts.

Investment expenses are an itemized deduction.

Ms. Adair, a single individual, has $218,000 AGI, which includes $43,000 net investment income. Compute Ms. Adair's unearned income Medicare contribution tax.

Individual taxpayers are not allowed to deduct capital losses in excess of capital gains.

Ten years ago, Elaine paid $10 per share for 2,000 shares of Lazlo common stock. This year, Elaine learned that Lazlo is in bankruptcy and can pay only 40% of its outstanding debt to its creditors. What are the tax consequences to Elaine of Lazlo's bankruptcy?

Mr. and Mrs. Sturm actively manage an office building that they purchased in January 1997. This year, the office building generated a $68,000 net loss. The couple's income items consisted of $72,300 salary and $14,000 interest and dividend income. How much of the rental loss is deductible this year?

Mr. and Mrs. Bolt's joint return reports $267,500 AGI, which includes $13,300 net investment income. Compute the couple's unearned income Medicare contribution tax.

An owner of undeveloped land held for investment must capitalize the property taxes paid on the land each year.

Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

Mr. Johnson borrowed money to buy Chicago municipal bonds. This year, he paid $2,000 interest on his loan and earned $3,500 interest income from the bonds. None of the interest expense is deductible.

The federal taxable estate of a decedent can exceed the value of the probate estate.

This year, Mr. Chester gave $50,000 to an old friend who has no legal obligation to repay the money. The entire $50,000 is a taxable gift.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 16: Investment and Personal Financial Planning

The interest earned on a state or local government bond is exempt from federal taxation.

Lana owns 50 shares of stock qualifying as Section 1244 stock. If she sells the stock to George, he can also treat the stock as Section 1244 stock.

Brokerage fees paid when stock is purchased are added to the basis of the stock.

The kiddie tax limits the tax savings from a transfer of income-producing property to a minor child by taxing a portion of such income at the tax rates applying to estates and trusts.

Investment expenses are an itemized deduction.

Ms. Adair, a single individual, has $218,000 AGI, which includes $43,000 net investment income. Compute Ms. Adair's unearned income Medicare contribution tax.

Individual taxpayers are not allowed to deduct capital losses in excess of capital gains.

Ten years ago, Elaine paid $10 per share for 2,000 shares of Lazlo common stock. This year, Elaine learned that Lazlo is in bankruptcy and can pay only 40% of its outstanding debt to its creditors. What are the tax consequences to Elaine of Lazlo's bankruptcy?

Mr. and Mrs. Bolt's joint return reports $267,500 AGI, which includes $13,300 net investment income. Compute the couple's unearned income Medicare contribution tax.

An owner of undeveloped land held for investment must capitalize the property taxes paid on the land each year.

Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

Mr. Johnson borrowed money to buy Chicago municipal bonds. This year, he paid $2,000 interest on his loan and earned $3,500 interest income from the bonds. None of the interest expense is deductible.

The federal taxable estate of a decedent can exceed the value of the probate estate.

This year, Mr. Chester gave $50,000 to an old friend who has no legal obligation to repay the money. The entire $50,000 is a taxable gift.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters