Question 1

How can electing to include preferentially-taxed capital gains and qualifying dividends in the computation of net investment income be beneficial to taxpayers?

Accepted Answer

If taxpayers elect to include preferenti

Question 2

The maximum amount of net capital losses individual taxpayers may deduct against their ordinary income per year is:

Accepted Answer

A)  $3,000. 
B)  $5,000. 
C)  Zero, losses are not deductible. 
D)  There is no maximum. All losses are allowed to be deducted. 
E)  None of the choices are correct. 
A)  $3,000. 
B)  $5,000. 
C)  Zero, losses are not deductible. 
D)  There is no maximum. All losses are allowed to be deducted. 
E)  None of the choices are correct.

Question 3

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Accepted Answer

A) True 
 B)False

Question 4

Kerri, a single taxpayer who itemizes deductions on Schedule A, incurs $15,000 of interest expense on funds borrowed to acquire taxable bonds. Kerri also has $20,000 of taxable interest income for the year. Assume Kerri is in a 32% marginal tax bracket. How much of the interest expense can she deduct? Assuming the same facts except that the $20,000 of investment income is a qualifying dividend rather than taxable interest income, what should Kerry do if she wants to minimize her current year tax liability?

Accepted Answer

She can deduct $15,000 of investment int

Question 5

Investment income includes:

Accepted Answer

A)  interest income. 
B)  net short-term capital gains. 
C)  non-qualified dividends. 
D)  royalty income. 
E)  All of the choices are correct. 
A)  interest income. 
B)  net short-term capital gains. 
C)  non-qualified dividends. 
D)  royalty income. 
E)  All of the choices are correct.

Question 6

What requirements must be satisfied before an investor may receive preferential tax treatment on dividend income, and what preferential treatment will result?

Accepted Answer

A dividend must be a qualified dividend

Question 7

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?

Accepted Answer

A)  $3,000 net short-term capital gain. 
B)  $3,000 net long-term capital loss. 
C)  $4,000 net short-term capital gain. 
D)  $4,000 net long-term capital loss. 
E)  None of the choices are correct. 
A)  $3,000 net short-term capital gain. 
B)  $3,000 net long-term capital loss. 
C)  $4,000 net short-term capital gain. 
D)  $4,000 net long-term capital loss. 
E)  None of the choices are correct.

Question 8

Which taxpayer would not be considered a material participant of an activity?

Accepted Answer

A)  Taxpayer materially participated in the activity for any five of the preceding ten years. 
B)  Taxpayer participated on a regular, continuous, and substantial basis last year. 
C)  Taxpayer participated 95 hours last year and participation is not less than any other participants for the year. 
D)  Taxpayer participated in the activity for 995 hours last year. 
E)  None of the choices are correct. 
A)  Taxpayer materially participated in the activity for any five of the preceding ten years. 
B)  Taxpayer participated on a regular, continuous, and substantial basis last year. 
C)  Taxpayer participated 95 hours last year and participation is not less than any other participants for the year. 
D)  Taxpayer participated in the activity for 995 hours last year. 
E)  None of the choices are correct.

Question 9

Interest earned on U.S. savings bonds is interest received at sale or maturity but must be taxed annually.

Accepted Answer

A) True 
 B)False

Question 10

Alain Mire files a single tax return and has adjusted gross income of $304,000. His net investment income is $53,000. What is the additional tax that Alain will pay on his net investment income for the year?

Accepted Answer

A)  Zero. 
B)  $2,014. 
C)  $3,952. 
D)  $1,938. 
E)  None of the choices are correct. 
A)  Zero. 
B)  $2,014. 
C)  $3,952. 
D)  $1,938. 
E)  None of the choices are correct.

Question 11

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

Accepted Answer

A) True 
 B)False

Question 12

When the wash sale rules apply, the realized loss is:

Accepted Answer

A)  recognized at time of sale. 
B)  not recognized at time of sale and does not affect basis of newly acquired stock. 
C)  recognized at time of sale and added to basis of the newly acquired stock. 
D)  not recognized at time of sale and added to basis of the newly acquired stock. 
E)  not recognized at time of sale and subtracted from the basis of the newly acquired stock. 
A)  recognized at time of sale. 
B)  not recognized at time of sale and does not affect basis of newly acquired stock. 
C)  recognized at time of sale and added to basis of the newly acquired stock. 
D)  not recognized at time of sale and added to basis of the newly acquired stock. 
E)  not recognized at time of sale and subtracted from the basis of the newly acquired stock.

Question 13

When a taxable bond is issued at a premium, the taxpayer may elect to calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

Accepted Answer

A) True 
 B)False

Question 14

Net investment income is always less than gross investment income.

Accepted Answer

A) True 
 B)False

Question 15

Investment expenses (other than investment interest expenses) are deductible beginning in 2018.

Accepted Answer

A) True 
 B)False

Question 16

What is the correct order of the loss limitation rules?

Accepted Answer

A)  Tax basis, at-risk amount, passive loss limits. 
B)  At-risk amount, tax basis, passive loss limits. 
C)  Passive loss limits, at-risk amount, tax basis. 
D)  Tax basis, passive loss limits, at-risk amount. 
E)  Passive loss limits, tax basis, at-risk amount. 
A)  Tax basis, at-risk amount, passive loss limits. 
B)  At-risk amount, tax basis, passive loss limits. 
C)  Passive loss limits, at-risk amount, tax basis. 
D)  Tax basis, passive loss limits, at-risk amount. 
E)  Passive loss limits, tax basis, at-risk amount.

Question 17

John holds a taxable bond and a municipal bond. Which are considered part of John's deductible investment interest expense?

Accepted Answer

A)  Attorney and accounting fees on municipal bond. 
B)  Safe deposit box rental fees on taxable bond. 
C)  Interest expense on taxable bond. 
D)  Interest expense on municipal bond. 
E)  Interest expense on municipal bond and interest expense on taxable bond. 
A)  Attorney and accounting fees on municipal bond. 
B)  Safe deposit box rental fees on taxable bond. 
C)  Interest expense on taxable bond. 
D)  Interest expense on municipal bond. 
E)  Interest expense on municipal bond and interest expense on taxable bond.

Question 18

Brandon and Jane Forte file a joint tax return and decide to itemize their deductions. The Forte's income for the year consists of $120,000 in salary, $1,000 interest income, $1,500 nonqualifying dividends, and $1,100 long-term capital gains. The Forte's expenses for the year consist of $3,000 investment interest expense and $900 tax preparation fees. Assuming that the Forte's marginal tax rate is 30% and they make no special elections, what is the amount of investment interest expense deduction for the year?

Accepted Answer

A)  Zero. 
B)  $1,000. 
C)  $2,500. 
D)  $3,000. 
E)  None of the choices are correct. 
A)  Zero. 
B)  $1,000. 
C)  $2,500. 
D)  $3,000. 
E)  None of the choices are correct.

Question 19

Losses associated with personal-use assets, sales to related parties, and wash sales are not currently deductible.

Accepted Answer

A) True 
 B)False

Question 20

Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2016. On December 31, 2018 she sold all 1,000 shares of her Ibis stock for $4,500. Based on a hot tip from her friend, she bought 1,000 shares of Ibis stock on January 23, 2019 for $3,000. What is Ms. Fresh's recognized loss on her 2018 sale and what is her basis in her 1,000 shares purchased in 2019?

Accepted Answer

A)  $-0- LTCL and $3,500 basis. 
B)  $200 LTCL and $3,300 basis. 
C)  $300 LTCL and $3,200 basis. 
D)  $400 LTCL and $3,100 basis. 
E)  $500 LTCL and $3,000 basis. 
A)  $-0- LTCL and $3,500 basis. 
B)  $200 LTCL and $3,300 basis. 
C)  $300 LTCL and $3,200 basis. 
D)  $400 LTCL and $3,100 basis. 
E)  $500 LTCL and $3,000 basis.

How can electing to include preferentially-taxed capital gains and qualifying dividends in the computation of net investment income be beneficial to taxpayers?

The maximum amount of net capital losses individual taxpayers may deduct against their ordinary income per year is:

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Investment income includes:

What requirements must be satisfied before an investor may receive preferential tax treatment on dividend income, and what preferential treatment will result?

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?

Which taxpayer would not be considered a material participant of an activity?

Interest earned on U.S. savings bonds is interest received at sale or maturity but must be taxed annually.

Alain Mire files a single tax return and has adjusted gross income of $304,000. His net investment income is $53,000. What is the additional tax that Alain will pay on his net investment income for the year?

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

When the wash sale rules apply, the realized loss is:

When a taxable bond is issued at a premium, the taxpayer may elect to calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

Net investment income is always less than gross investment income.

Investment expenses (other than investment interest expenses) are deductible beginning in 2018.

What is the correct order of the loss limitation rules?

John holds a taxable bond and a municipal bond. Which are considered part of John's deductible investment interest expense?

Losses associated with personal-use assets, sales to related parties, and wash sales are not currently deductible.

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters

Exam 7: Investments

How can electing to include preferentially-taxed capital gains and qualifying dividends in the computation of net investment income be beneficial to taxpayers?

The maximum amount of net capital losses individual taxpayers may deduct against their ordinary income per year is:

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Investment income includes:

What requirements must be satisfied before an investor may receive preferential tax treatment on dividend income, and what preferential treatment will result?

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?

Which taxpayer would not be considered a material participant of an activity?

Interest earned on U.S. savings bonds is interest received at sale or maturity but must be taxed annually.

Alain Mire files a single tax return and has adjusted gross income of $304,000. His net investment income is $53,000. What is the additional tax that Alain will pay on his net investment income for the year?

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

When the wash sale rules apply, the realized loss is:

When a taxable bond is issued at a premium, the taxpayer may elect to calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

Net investment income is always less than gross investment income.

Investment expenses (other than investment interest expenses) are deductible beginning in 2018.

What is the correct order of the loss limitation rules?

John holds a taxable bond and a municipal bond. Which are considered part of John's deductible investment interest expense?

Losses associated with personal-use assets, sales to related parties, and wash sales are not currently deductible.

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters