Exam 16: Investment and Personal Financial Planning

Income generated from an investment activity is primarily attributable to invested capital rather than the owner's personal involvement in the 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 does not reduce a decedent's taxable estate?

Unrecaptured Section 1250 gain is taxed at a maximum rate of 28%.

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?

Two years ago, James loaned $60,000 to his friend. The debt is now uncollectible. If the loan created a bona fide debt, James recognizes a short-term capital loss.

Mr and Mrs Philips recognized the following capital gains and losses this year. Short-term capital gain $ 10,000 Short-term capital loss $ (4,000 ) Long-term capital gain $ 45,000 Long-term capital loss $ (60,000 ) Their AGI before consideration of these gains and losses was $140,000. Compute their AGI.

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.

Electing to reinvest dividends in additional shares of stock does not defer income recognition.

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 may carry nondeductible capital losses forward indefinitely.

The unearned income Medicare contribution tax applies only to individual taxpayers whose marginal income tax rate is 37%.

Mr McCann died this year. During his lifetime, he made taxable gifts significantly in excess of his lifetime exclusion. Mr McCann's taxable estate was $21.9 million. Compute the estate tax on this estate.

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

Beverly earned a $75,000 salary and recognized a $7,200 loss on the sale of corporate stock this year. Compute her AGI in each of the following independent cases. a. Beverly had no other capital transactions this year. b. Beverly recognized a $13,500 capital gain on the sale of mutual fund shares. c. Beverly received a $9,500 capital gain distribution from a mutual fund and had a $3,200 capital loss carryforward from a previous year.

Which of the following statements about annuity contracts is true?

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

Mr Moyer owns residential rental property. This year, he received $7,000 revenue from the tenants and incurred $14,900 rental expenses. Mr Moyer must include $7,000 in gross income and is allowed only $7,000 of above-the-line deductions for the expenses.

Which of the following statements about Section 1244 stock is true?

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.