Exam 11: Investments

Henry, a single taxpayer with a marginal tax rate of 35 percent, sold the following assets during the year: Asset Sale Price Tax Basis Gain/Loss Holding Period ABC Stock \ 50,000 \ 25,000 \ 25,000 More than 1 Year XYZ Stock \ 12,000 \ 9,000 \ 3,000 Less than 1 Year Stamp Collection \ 10,000 \ 5,000 \ 5,000 More than 1 Year RST Stock \ 13,000 \ 19,000 (\ 6,000) Less than 1 Year Rental Home \ 100,000 \ 50,00 \ 50,000 More than 1 Year *The original purchase price of the rental home was $75,000. The current tax basis reflects $25,000 of tax depreciation taken. What tax rate(s) will apply to Henry's capital gains or losses?

What are the rules limiting the amount of capital losses a taxpayer may deduct in a given year? Name at least three.

Qualified dividends are always taxed at a 15 percent preferential rate.

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

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

When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?

How are individual taxpayers' investment expenses and investment interest expense treated for tax purposes?

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?

Alain Mire files a single tax return and has adjusted gross income of $304,000. His net investment income is $53,000. What is the additional tax that Alain will pay on his net investment income for the year?

Which of the following types of interest income is not taxed as it is earned?

The maximum amount of net capital losses individuals may deduct against their ordinary income per year is:

Kevin bought 200 shares of Intel stock on January 1, 2014 for $50 per share with a brokerage fee of $100. Then, Kevin sells all 200 shares for $75 per share on December 12, 2014. The brokerage fee on the sale was $150. What is the amount of the gain/loss Kevin must report on his 2014 tax return?

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:

Emily invested $60,000 into a 529 account on January 1, 20X8 to fund her son's future schooling. Five years later, Emily needs this money to purchase a new car for the family. Her after-tax and penalty proceeds were $76,896. What is Emily's after-tax and penalty rate of return?

A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.

Which of the following is not an example of the conversion tax planning strategy?

Dave and Jane file a joint return. They sell a capital asset at a $150,000 loss. Even though they have no capital gains, $6,000 of the loss can still be deducted in the current year.

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

How can electing to include long-term capital gains and qualifying dividends in the computation of net investment income be beneficial to taxpayers?

Susan Brown has decided that she would like to go back to school after her kids leave home in five years. To save for her education, Susan would like to invest $25,000 in an investment that provides a high return. If her marginal tax rate is 35 percent, what is Susan's after-tax rate of return for the following investment options? (1) Corporate bond issued at face value with 10 percent stated interest rate payable annually (2) Dividend-paying stock with an annual qualifying dividend equal to 10% of her investment (3) Growth stock with an annual growth rate of 8 percent and no dividends paid (4) Municipal bond yielding a 6 percent annual return (5) 529 plan with 7 percent annual return (all disbursements will be spent on qualifying educational expenses). (Round your interim calculations to the nearest whole number)