Exam 11: Investments

Bill would like some tax benefits for his investment expenses incurred this year. His AGI is $190,000. Currently, his expenses consist of: (1) $1,000 investment advice fees, (2) $1,500 unreimbursed employee business expenses (a miscellaneous itemized deduction), and (3) $600 tax return preparation fees. How much more, if any, must Bill spend for investment expenses this year before he receives any tax benefit?

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?

What requirements must be satisfied before an investor may receive preferential tax treatment on dividend income, and what preferential treatment will result?

Richard purchased a life insurance policy at a cost of $65,000. His two sons, Dale and Drew, were named the beneficiaries. His policy promises a return of 7.5 percent per year if Richard dies after his normal life expectancy of 25 years. Due to a recent recession, Richard must cash out his policy after 15 years. How much cash will Richard receive after-taxes and what is his after-tax rate of return? Assume Richard's marginal tax rate is 30%.

Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($15,000) loss; however, Michelle has sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $115,000 of salary, $10,000 of long-term capital gains, $3,000 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct?

When electing to include long-term capital gains and qualified dividends in net investment income, taxpayers must include all long-term capital gains and dividends recognized for that year.

If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for more than one year, which gain will be taxed at the highest rate at the time of sale?

The investment interest expense deduction is limited to the amount of net investment income for the year.

Which of the following is not a tax advantage of a Series EE Saving Bond?

Judy, a single individual, reports the following items of income and loss: Salary $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad$ $\$ 120,000$ Loss from rental property $\quad\quad\quad\quad\quad\quad\quad\quad$ $( \mathbf { 4 0 , 0 0 0 } )$ Judy owns 100% of the rental property and actively participates in the rental of the property. Calculate Judy's AGI.

The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:

When the wash sale rules apply, the realized loss is:

Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2012. On December 31, 2014 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, 2015 for $3,000. What is Ms. Fresh's recognized loss on her 2014 sale and what is her basis in her 1,000 shares purchased in 2015?

High-marginal rate taxpayers generally prefer municipal bonds and low-marginal rate taxpayers generally prefer taxable corporate bonds.

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?

Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

Nondeductible investment expenses (other than investment interest expenses) are carried forward indefinitely.

With tax-exempt investment income, an investor's before-tax rate of return is greater than her after-tax rate of return.

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

What are the tax and nontax consequences associated with purchasing a whole life insurance policy on your life?