Exam 11: Investments

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.

All life insurance proceeds given to the beneficiary at the time of death of the insured are excluded from gross income.

In the current year, Norris, an individual, has $50,000 of ordinary income, a Net Short Term Capital Loss (NSTCL) of $10,000 and a Net Long Term Capital Gain (NLTCG) of $2,800. From his capital gains and losses, Norris reports:

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

Investment interest expense does not include:

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?

A taxpayer's at-risk amount in an activity is increased by:

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?

If Adam invested $25,000 in a stock paying annual dividends equal to 5% of his investment, what would the value of his investment be 10 years from now assuming that he reinvested his after-tax dividends each year? Assume Adam's marginal ordinary tax rate is 15%.

Brandon and Jane Forte file a joint tax return and decide to itemize their deductions. The Forte's income for the year consists of $120,000 in salary, $1,000 interest income, $1,500 nonqualifying dividends, and $1,000 long-term capital gains. The Forte's expenses for the year consist of $3,000 investment interest expense and $900 tax preparation fees. Assuming that the Forte's marginal tax rate is 30%, what is the amount of investment interest expense deduction for the year?

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

On January 1, 20X8, Jill contributed $18,000 of cash to the XYZ limited partnership for a 25 percent limited partnership interest. On April 6, 20X8, XYZ, limited partnership distributed $2,000 to Jill. For the year ended December 31, 20X8, Jill received the following income/loss allocations from her partnership investments: (1) XYZ, limited partnership allocated a $5,000 loss to Jill (2) ABC limited partnership allocated $2,300 of income to Jill. How much of the $5,000 loss from XYZ limited partnership can Jill deduct in 20X8?

Taxpayers may make an election to include long-term capital gains and qualified dividends in net investment income and deduct more investment interest expense currently if they are willing to subject these sources of income to ordinary tax rates.

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

Generally, losses from rental activities are considered to be active losses.

Unrecaptured §1250 gain is taxed at the 28 percent preferential capital gains rate.

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

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)

Dan and Sue Hill file a joint tax return and elect to itemize their deductions. For 20X7, the Hills received the following income items: (1) $150,000 salary, (2) $3,000 long-term capital gain, and (3) $1,500 interest income. Other than these amounts, no other events or transactions affected their AGI in 20X7. During the same year, the Hills incurred the following expenses: (1) $500 tax preparation fees, (2) $4,000 investment expenses, and (3) $10,000 additional miscellaneous expenses. Assuming the Hills have a marginal tax rate of 30 percent, what is the tax benefit they receive from the investment expenses they paid?

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: