Exam 16: Investment and Personal Financial Planning

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 35%.Compute his after-tax rate of return on the bond.

Ms.Watts owns stock in two S corporations,MKP Corporation and Reynolds Inc.This year,Ms.Watts had the following income and loss items. If Ms.Watts materially participates in the business of both corporations,compute her AGI.

Two years ago,Mr.Young paid $40,000 to buy a publicly traded corporate bond through his broker.The bond's stated redemption value was $45,000.This year,Mr.Young sold the bond for $47,100.Compute and characterize his gain or loss on sale.

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.

Revenue generated by the unearned income Medicare contribution tax is earmarked for the Medicare trust fund.

Twenty years ago,Mrs.Cole purchased an insurance policy on her own life.Mrs.Cole died this year,and the policy paid the $300,000 death benefit to her son Jeffrey.During her life,Mrs.Cole paid total premiums of $71,200 on the policy.Which of the following statements is true?

In 2001,Mrs.Qualley,contributed $100,000 in exchange for 1,000 shares of Little Corporation,which is a qualified small business.This year,Mrs.Qualley's only capital transaction was the sale of the 1,000 shares of Little qualified small business stock for $180,000.Compute Mrs.Qualley's income tax on her capital gain from this sale.

Which of the following statements about an investment in undeveloped land is false?

Investors must hold qualified small business stock for more than five years in order to exclude a percentage of the gain on sale of such stock from gross income.

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

Individual taxpayers may carry nondeductible capital losses forward indefinitely.

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?

Which of the following statements about investment interest expense is true?

Mr.Carp,a single taxpayer,recognized a $44,000 long-term capital gain,a $12,000 short-term capital gain,and a $10,000 long-term capital loss.Compute Mr.Carp's 2017 income and Medicare contribution tax if his taxable income before consideration of his capital transactions is $465,000,none of which is investment income

Mrs.Lindt exchanged 212 shares of Nipher common stock for 773 shares of Newland common stock.Her basis in the Nipher 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?

Ms.Mollani owns stock in two S corporations,Aloha and Honu.This year,she had the following income and loss items: Compute Ms.Mollani's AGI under each of the following assumptions. a.She materially participates in Aloha's business but not in Honu's business. b.She materially participates in Honu's business but not in Aloha's business. c.She materially participates in both corporate businesses. d.She does not materially participate in either business.

The unearned income Medicare contribution tax applies only to individual taxpayers whose marginal income tax rate is 39.6%.

Frederick Tims,a single individual,sold the following investment assets this year. If Frederick's marginal tax rate on ordinary income is 33%,compute his tax attributable to the above sales.

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

An individual with a 15% rate marginal tax rate on ordinary income will pay no tax on long-term capital gains.