Exam 16: Investment and Personal Financial Planning

On April 19 of this year, Sandy learned that her stock investment had become worthless. The stock is deemed to be worthless on December 31 of this year.

The death benefit of a life insurance policy is taxable to the policy beneficiary upon the death of the insured individual.

Ms. Regga, a physician, earned $375,000 from her medical practice and $20,500 interest and qualified dividends from her investment portfolio. She was allocated a $67,000 loss from a passive activity. Compute Ms. Regga's AGI.

Mr. Gordon, a resident of Pennsylvania, paid $20,000 for a bond issued by Delaware. This year, he received $800 of interest on the bond. His marginal state tax rate is 7%, and under Pennsylvania law, interest on debt obligations issued by another state is taxable. Mr. Gordon can deduct state income tax on his federal return, and his marginal federal tax rate is 37%. Compute his after-tax rate of return on the bond.

As a general tax planning rule, individuals should sell assets that have declined in value prior to death and keep appreciated property to transfer to their heirs at death.

A beneficiary's basis of inherited property equals the decedent's adjusted basis immediately prior to death.

Which of the following statements about the federal gift tax is false?

Mr. Moyer owns residential rental property. This year, he received $7,000 revenue from the tenants and incurred $4,900 rental expenses. Mr. Moyer must include $7,000 in gross income and is allowed $4,900 of itemized deductions for the expenses.

An individual with a 10% marginal tax rate on ordinary income will pay no tax on long-term capital gains.

Mr. Ricardo exchanged 75 shares of Haslet common stock for 516 shares of Newland common stock pursuant to a reorganization of the two corporations. His basis in the Haslet stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

In 1996, Mr. Exton, a single taxpayer, contributed $30,000 in exchange for 100 shares of Morton stock. In 2005, he paid $43,000 to another shareholder to purchase 100 more shares of Morton stock. Morton stock qualified as Section 1244 stock when it was issued. This year, Mr. Exton sold his 200 Morton shares for $250 per share. What is the amount and character of Mr. Exton's recognized loss?

Frederick Tims, a single individual, sold the following investment assets this year. Asset Date purchased Date sold Tax basis Sales price 100 shares Gamma 01/04/08 05/07/20 \ 5,000 \ 15,000 Inc. 30 shares Land 12/31/90 10/01/20 \ 75,000 \ 100,000 Inc. 50 shares Down 05/10/12 11/01/20 \ 12,000 \ 8,000 Corp. 10 shares Extel 03/25/07 02/19/20 \1 7,000 \ 5,000 Inc. If Frederick's preferential tax rate on adjusted capital gain is 15%, compute his tax attributable to the above sales.

Sixteen years ago, Ms. Herbert purchased an annuity for $96,000. Beginning in September of this year, the annuity began paying Ms. Herbert $4,000 per month for the rest of her life. Based on her age, Ms. Herbert's expected return is $300,000. How much of the $16,000 that she received this year is included in taxable income?

Cash basis individuals must accrue market discount on a bond as annual interest income over the life of the bond.

Mr. and Mrs. Golding own 13,850 shares in PTJ mutual fund. This year, they received a $6,390 cash distribution from PTJ. Which of the following statements is false?

Investment interest expense is an above-the-line deduction.

Only accrual basis individuals are required to accrue original issue discount on a bond as annual interest income.

Which of the following statements about the individual capital gains and losses is false?

Ms. Cowler owns stock in Serzo Inc., an S corporation, and an interest in OTW Partnership. This year, Ms. Cowler had the following income and loss items. $\begin{array}{llr} \text { Salary } &\$66,800\\ \text { Interest and dividends} &1,200\\ \text { Business loss from Serzo } &\$(19,400)\\ \text { Business income from OTW } &\$17,000\end{array}$ If Ms. Cowler's interests in Serzo and OTW are passive activities, compute her AGI.

Twenty years ago, Mr. Wallace purchased a $250,000 insurance policy on his own life and named his daughter as sole beneficiary. He has paid $14,250 total premiums to keep this policy in force. This year, he liquidates the policy for its $20,000 cash surrender value. Which of the following statements is true?