Exam 16: Investment and Personal Financial Planning

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

The kiddie tax limits the tax savings from a transfer of income-producing property to a minor child by taxing a portion of such income at the parent's marginal tax rate.

The interest earned on investments in U.S. debt obligations is subject to state taxation.

Up to $100,000 of loss recognized on the sale of Section 1244 stock by a married individual filing a joint return is characterized as ordinary loss.

Material participation in a business activity means that the individual is involved in the day-to-day operations on a regular, continuous, and substantial basis.

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?

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

The tax rate on capital gains is determined solely by reference to the capital asset's holding period.

An owner of a life insurance policy that includes an investment element must recognize income equal to the annual increase in the policy's cash surrender value.

Kate recognized a $25,700 net long-term capital gain and a $33,000 net short-term capital loss this year. What is her current net income tax cost or savings from her capital transactions if her marginal rate on ordinary income is 28%?

This year, Ms. Kwan recognized a $16,900 net long-term capital loss. Which of the following statements is true?

Emil Nelson paid $174,500 for an annuity that will pay him $1,300 per month for life. Based on Emil's age, his expected return is $405,813. This year, Emil received 12 payments totaling $15,600. How much of this total is taxable income?

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.

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

Mr. Adams paid $53,500 in premiums on a whole life insurance policy. When he canceled the policy, he received its cash surrender value of $61,600. He must recognize $61,600 of income as a result of the cancellation.

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

Mr. and Mrs. Bolt's joint return reports $267,500 AGI, which includes $13,300 net investment income. Compute the couple's unearned income Medicare contribution tax.

Bess gave her grandson ten acres of undeveloped land. Bess' tax basis in the land was $35,000, and its fair market value at date of gift was $175,000. Two years after receiving the land, the grandson sold it for $200,000. Compute his recognized gain on sale.

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?

Individual taxpayers may carry nondeductible capital losses forward indefinitely.