Exam 7: Investments

In the current year,Norris,an individual,has $50,000 of ordinary income,a Net Short Term Capital Loss (NSTCL)of $10,000 and a Net Long Term Capital Gain (NLTCG)of $2,800.From his capital gains and losses,Norris reports:

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(Multiple Choice)

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Question 1

Correct Answer:

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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?

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(Multiple Choice)

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Question 2

Correct Answer:

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Henry,a single taxpayer with a marginal tax rate of 35 percent,sold the following assets during the year: *$25,000 of the gain is a 25 percent gain.The remaining gain is 0/15/20 percent gain. What tax rate(s)will apply to Henry's capital gains or losses?

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Question 3

Correct Answer:

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A $2,000 long-term capital gain taxed at 28%,$25,000 long-term capital gains taxed at 25% and $50,000 long-term capital gain taxed at 15%.
See computations below:
Step 1: ($3,000)net short-term capital loss [$3,000 + ($6,000)].
Step 2: The $25,000 gain on the ABC stock,and $25,000 of gain from the rental home are placed in the 0/15/20 percent group resulting in $50,000 of 0/15/20 percent gains.$25,000 of the gain from the rental property is placed in the 25 percent group,and the $5,000 gain on the stamp collection is placed in the 28 percent group.
Step 3: (B)Proceed to step 6.
Step 4: Not required.
Step 5: Not required.
Step 6: Move the ($3,000)loss from Step 1 into the 28 percent group to offset the $5,000 gain from the stamp collection.This step leaves $2,000 to be taxed at a maximum of 28 percent,$25,000 taxed at a maximum of 25 percent,and $50,000 taxed at 15 percent because Henry's marginal tax rate is 35 percent.
Step 7: Not required.

The netting process for capital gains (losses)with 0/15/20 percent,25 percent,and 28 percent capital assets helps maximize the tax benefit of:

(Multiple Choice)

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Question 4

Roy,a resident of Michigan,owns 25 percent of a fourplex in the nearby college town of Ann Arbor with three other friends.The fourplex is rented to students who attend the University of Michigan.Roy's responsibility is to approve new tenants each year and take care of any maintenance issues.During the year,the rental property generated a $25,000 loss,which was split equally among Roy and his three friends.Assuming Roy's only source of income was $145,000 of salary,how much of the rental loss can Roy deduct this year and what amount must be carried forward?

(Essay)

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Question 5

Taxpayers may make an election to include long-term capital gains and qualified dividends in net investment income and deduct more investment interest expense currently if they are willing to subject this income to ordinary tax rates.

(True/False)

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Question 6

What is the tax treatment for qualified small business stock acquired in 2017 and held for more than five years and what is the tax treatment if held for less than five years?

(Essay)

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Question 7

Generally,which of the following does not correctly categorize the type of income?

(Multiple Choice)

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Question 8

When calculating net investment income,gross investment income includes:

(Multiple Choice)

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Question 9

The Crane family recognized the following types of investment income during 20X6: (1)$1,500 qualified dividends,(2)$3,000 long-term capital gains,and (3)$850 taxable interest.Additionally,the Crane family has $500 in investment expenses and their other miscellaneous itemized deductions exceed 2% of their AGI for the year.The Crane family paid $3,333 in investment interest expense during 20X6.Calculate the different possibilities to determine the maximum deduction for investment interest expense for the Crane family in 20X6.From these possibilities,which provides the maximum deduction?

(Essay)

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Question 10

Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership.The partnership had $20,000 of qualified nonrecourse debt and $20,000 of debt she is not responsible to repay because she is a limited partner.Sue is allocated a 10 percent share of both types of debt resulting in a tax basis of $9,000 and an at risk amount of $7,000.During the year,ABC LP generated a ($90,000)loss.How much of Sue's loss is disallowed due to her tax basis or at-risk amount?

(Multiple Choice)

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Question 11

Doug and Sue Click file a joint tax return and decide to itemize their deductions.The Click's income for the year consists of $90,000 in salary,$2,000 interest income,$800 long-term capital loss.The Click's expenses for the year consist of $1,500 investment interest expense.Assuming that the Click's marginal tax rate is 35%,what is the amount of their investment interest expense deduction for the year?

(Multiple Choice)

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Question 12

A taxpayer's at-risk amount in an activity is increased by:

(Multiple Choice)

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Question 13

Given that losses from passive activities can only offset income from passive activities unless the passive activity is sold,what types of activities are not considered to be passive? Name at least three ways a taxpayer may be treated as an active participant in an activity.

(Essay)

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Question 14

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.

(True/False)

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Question 15

Ms.Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15,2015.On December 31,2017 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 23,2018 for $3,000.What is Ms.Fresh's recognized loss on her 2017 sale and what is her basis in her 1,000 shares purchased in 2018?

(Multiple Choice)

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Question 16

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

(True/False)

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Question 17

The rental real estate exception favors:

(Multiple Choice)

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Question 18

Investment expenses and investment interest expense are for AGI deductions.

(True/False)

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Question 19

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

(True/False)

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Question 20

Showing 1 - 20 of 76

In the current year,Norris,an individual,has $50,000 of ordinary income,a Net Short Term Capital Loss (NSTCL)of $10,000 and a Net Long Term Capital Gain (NLTCG)of $2,800.From his capital gains and losses,Norris reports:

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?

Henry,a single taxpayer with a marginal tax rate of 35 percent,sold the following assets during the year: *$25,000 of the gain is a 25 percent gain.The remaining gain is 0/15/20 percent gain. What tax rate(s)will apply to Henry's capital gains or losses?

The netting process for capital gains (losses)with 0/15/20 percent,25 percent,and 28 percent capital assets helps maximize the tax benefit of:

Taxpayers may make an election to include long-term capital gains and qualified dividends in net investment income and deduct more investment interest expense currently if they are willing to subject this income to ordinary tax rates.

What is the tax treatment for qualified small business stock acquired in 2017 and held for more than five years and what is the tax treatment if held for less than five years?

Generally,which of the following does not correctly categorize the type of income?

When calculating net investment income,gross investment income includes:

A taxpayer's at-risk amount in an activity is increased by:

Given that losses from passive activities can only offset income from passive activities unless the passive activity is sold,what types of activities are not considered to be passive? Name at least three ways a taxpayer may be treated as an active participant in an activity.

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.

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

The rental real estate exception favors:

Investment expenses and investment interest expense are for AGI deductions.

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

An Introduction to Tax

Tax Compliance, The IRS and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, 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

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