Exam 16: Investment and Personal Financial Planning

Mr. Lainson died this year on a date when the total FMV of his property was $12 million and his debts totaled $450,000. His executor paid $15,000 of funeral expenses and $50,000 of accounting and legal fees to settle the estate. Mr. Lainson bequeathed $1 million to Villanova University, $200,000 to the Lutheran church, and $3.5 million to his surviving spouse. He left the remainder of the estate to his children. Compute Mr. Lainson's taxable estate.

Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. She also paid $660 of management fees that were fully deductible on ScheduleA. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

An inter vivos transfer is a gratuitous transfer of property by an individual that occurs at death.

Mr. Ricardo exchanged 75 shares of Haslet common stock for 516 shares of Newland common stock pursuant to a reorganization of the two corporations. His basis in the Haslet 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?

Frederick Tims, a single individual, sold the following investment assets this year. Aret Date Furchaned Date nald Tax barir Saler price 100 shares Garrun Inc. 01/04/08 05/07/16 \ 5,000 \ 15,000 30 shares Larnd Inc. 12/31/90 10/01/16 \ 75,000 \ 100,000 50 shares Down Corp. 05/10/12 11/01/16 \ 12,000 \ 8,000 10 shares Extel Inc. 03/25/07 02/19/16 \ 17,000 \ 5,000 If Frederick's marginal tax rate on ordinary income is 33%, compute his tax attributable to the above sales.

Fifteen years ago, Lenny purchased an insurance policy on his own life. The policy provides a $3 million death benefit. Lenny has paid $682,000 of premiums, and the cash surrender value of the policy is $725,000. He plans to liquidate the policy to generate cash for his business. If Lenny's marginal tax rate is 35%, how much after-tax cash will the liquidation generate?

Investment expenses are a miscellaneous itemized deduction subject to the 2% AGI limitation.

In 1996, Mr. Exton, a single taxpayer, contributed $30,000 in exchange for 100 shares of Morton stock. In 2005, he paid $43,000 to another shareholder to purchase 100 more shares of Morton stock. Morton stock qualified as Section 1244 stock when it was issued. This year, Mr. Exton sold his 200 Morton shares for $250 per share. What is the amount and character of Mr. Exton's recognized loss?

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.

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.

Life insurance proceeds are includible in the taxable estate of the decedent if the decedent was the owner of the policy.

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

Cash basis individuals must accrue market discount on a bond as annual interest income over the life of the bond.

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?

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

In 2016, Mr. Ames, an unmarried individual, made a gift of real estate to his nephew. Compute the amount subject to the federal gift tax in each of the following situations. a. FMV of the real estate was $1,800,000, and the transfer was Mr. Ames' first taxable gift. b. FMV of the real estate was $7,250,000 and the transfer was Mr. Ames' first taxable gift. c. FMV of the real estate was $2,300,000. Two years ago, Mr. Ames made his first taxable gift of marketable securities with a $3,920,000 FMV in excess of the annual exclusion.

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

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.

Ms. Beal recognized a $42,400 net long-term capital gain and a $33,000 net short-term capital loss this year. What is her current net income tax cost from her capital transactions if her marginal rate on ordinary income is 39.6%?

This year, Mr. and Mrs. Lebold paid $3,100 investment interest expense. They earned $4,750 investment income consisting of $1,900 interest and $2,850 qualified dividends, and they incurred no investment expenses. Which of the following statements is true?