Question 1

Long-term capital gains can be taxed at a maximum rate of:

Accepted Answer

A)  20 percent 
B)  25 percent 
C)  28 percent 
D)  Both 20 percent and 28 percent 
E)  All of these. 
A)  20 percent 
B)  25 percent 
C)  28 percent 
D)  Both 20 percent and 28 percent 
E)  All of these.

Question 2

Nontax factor(s) investors should consider when choosing between investments include:

Accepted Answer

A)  before-tax rates of return 
B)  after-tax rates of return 
C)  liquidity needs 
D)  before-tax rates of return and after-tax rates of return 
E)  before-tax rates of return and liquidity needs 
A)  before-tax rates of return 
B)  after-tax rates of return 
C)  liquidity needs 
D)  before-tax rates of return and after-tax rates of return 
E)  before-tax rates of return and liquidity needs

Question 3

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A dividend must be a qualified dividend

Question 5

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%.

Accepted Answer

Richard's after tax

Question 6

Kevin has the option of investing in a municipal bond that provides a 4.5 percent return or a taxable bond that provides a 7 percent return. Assuming Kevin's marginal tax rate is 35 percent, what investment should he choose and why?

Accepted Answer

A)  Taxable bond; provides a 4.55 percent return versus 4.5 percent return for the municipal bond 
B)  Taxable bond; provides a 7 percent return versus 4.5 percent return for the municipal bond 
C)  Taxable bond; provides a 4.55 percent return versus 2.9 percent return for the municipal bond 
D)  Municipal bond; provides a 4.5 percent return versus 4.2 percent return for the taxable bond 
E)  None of these 
A)  Taxable bond; provides a 4.55 percent return versus 4.5 percent return for the municipal bond 
B)  Taxable bond; provides a 7 percent return versus 4.5 percent return for the municipal bond 
C)  Taxable bond; provides a 4.55 percent return versus 2.9 percent return for the municipal bond 
D)  Municipal bond; provides a 4.5 percent return versus 4.2 percent return for the taxable bond 
E)  None of these

Question 7

Phil and Emily Brooks have three sons, Jason, 16, Tom, 12, and Adam, 10. They create a Colorado 529 plan for each of their sons by investing $10,000 in three different plans. Each of these investments yields a constant return of 6.5 percent. When they turned 18, Jason and Adam withdrew the funds in their 529 plans and used the money for higher education expenses while Tom withdrew the funds in his 529 plan to start a new business. Assuming that each of the sons have a 15 percent marginal tax rate when they turn 18, how much money will each of the three boys have after paying all applicable taxes due? (Round all interim and final calculations to the nearest whole number)

Accepted Answer

Jason will have $11,

Question 8

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

Accepted Answer

A)  rental real estate - passive income/loss 
B)  salary - active income/loss 
C)  dividends - portfolio income/loss 
D)  capital losses - passive income/loss 
E)  All of these 
A)  rental real estate - passive income/loss 
B)  salary - active income/loss 
C)  dividends - portfolio income/loss 
D)  capital losses - passive income/loss 
E)  All of these

Question 9

The rental real estate exception favors:

Accepted Answer

A)  lower income taxpayers (AGI less than $80,000) 
B)  middle income taxpayers (AGI greater than $80,000 and less than $150,000) 
C)  upper income taxpayers (AGI greater than $150,000) 
D)  lower income taxpayers (AGI less than $80,000) and middle income taxpayers (AGI greater than $80,000 and less than $150,000) 
E)  middle income taxpayers (AGI greater than $80,000 and less than $150,000) and upper income taxpayers (AGI greater than $150,000) 
A)  lower income taxpayers (AGI less than $80,000) 
B)  middle income taxpayers (AGI greater than $80,000 and less than $150,000) 
C)  upper income taxpayers (AGI greater than $150,000) 
D)  lower income taxpayers (AGI less than $80,000) and middle income taxpayers (AGI greater than $80,000 and less than $150,000) 
E)  middle income taxpayers (AGI greater than $80,000 and less than $150,000) and upper income taxpayers (AGI greater than $150,000)

Question 10

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

Accepted Answer

A)  recognized at time of sale 
B)  not recognized at time of sale and does not affect basis of newly acquired stock 
C)  recognized at time of sale and added to basis of the newly acquired stock 
D)  not recognized at time of sale and added to basis of the newly acquired stock 
E)  not recognized at time of sale and subtracted from the basis of the newly acquired stock 
A)  recognized at time of sale 
B)  not recognized at time of sale and does not affect basis of newly acquired stock 
C)  recognized at time of sale and added to basis of the newly acquired stock 
D)  not recognized at time of sale and added to basis of the newly acquired stock 
E)  not recognized at time of sale and subtracted from the basis of the newly acquired stock

Question 11

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?

Accepted Answer

A)  5.1% 
B)  6.1% 
C)  7.1% 
D)  8.1% 
E)  None of these 
A)  5.1% 
B)  6.1% 
C)  7.1% 
D)  8.1% 
E)  None of these

Question 12

The longer the holding period on growth stocks, ____________ the after-tax rate of return.

Accepted Answer

A)  the lesser 
B)  the greater 
C)  there is no difference between 
A)  the lesser 
B)  the greater 
C)  there is no difference between

Question 13

Which of the following portfolio investments is incorrectly characterized (Investment - Income Type - Timing of Taxation - Tax Rate)?

Accepted Answer

A)  Growth stock - appreciation in capital assets - current - capital gains 
B)  Municipal bonds - tax-exempt income - never - zero 
C)  Savings account - taxable interest - current - ordinary income 
D)  None of these. 
A)  Growth stock - appreciation in capital assets - current - capital gains 
B)  Municipal bonds - tax-exempt income - never - zero 
C)  Savings account - taxable interest - current - ordinary income 
D)  None of these.

Question 14

What is the tax treatment for qualified small business stock acquired in 2014 and held for more than five years and what is the tax treatment if held for less than five years?

Accepted Answer

Qualified business stock is considered a

Question 15

When a taxable bond is issued at a premium, the taxpayer must calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

Accepted Answer

A) True 
 B)False

Question 16

Tom, from Nebraska, and Jill, from Missouri, recently got married. To earn a decent return on all their wedding gifts, they decide to invest in some municipal bonds issued by the state of Missouri. Assuming they both qualify as Missouri residents, the bond interest Tom and Jill earn will be subject to the following taxes:

Accepted Answer

A)  federal income taxes only 
B)  federal and Missouri state income taxes 
C)  Missouri state income taxes only 
D)  Nebraska state income taxes only 
E)  None of these 
A)  federal income taxes only 
B)  federal and Missouri state income taxes 
C)  Missouri state income taxes only 
D)  Nebraska state income taxes only 
E)  None of these

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  selling corporate bonds to purchase growth stocks 
B)  selling U.S. Treasury bonds to purchase municipal bonds 
C)  cashing in a certificate of deposit to purchase a stock paying qualified dividends 
D)  withdrawing funds from a savings account to purchase a qualified small business stock 
E)  None of these 
A)  selling corporate bonds to purchase growth stocks 
B)  selling U.S. Treasury bonds to purchase municipal bonds 
C)  cashing in a certificate of deposit to purchase a stock paying qualified dividends 
D)  withdrawing funds from a savings account to purchase a qualified small business stock 
E)  None of these

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?

Accepted Answer

A)  $3,000 net short-term capital gain 
B)  $3,000 net long-term capital loss 
C)  $4,000 net short-term capital gain 
D)  $4,000 net long-term capital loss 
E)  None of these 
A)  $3,000 net short-term capital gain 
B)  $3,000 net long-term capital loss 
C)  $4,000 net short-term capital gain 
D)  $4,000 net long-term capital loss 
E)  None of these

Exam 11: Investments

Long-term capital gains can be taxed at a maximum rate of:

Nontax factor(s) investors should consider when choosing between investments include:

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.

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

Kevin has the option of investing in a municipal bond that provides a 4.5 percent return or a taxable bond that provides a 7 percent return. Assuming Kevin's marginal tax rate is 35 percent, what investment should he choose and why?

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

The rental real estate exception favors:

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

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?

The longer the holding period on growth stocks, ____________ the after-tax rate of return.

Which of the following portfolio investments is incorrectly characterized (Investment - Income Type - Timing of Taxation - Tax Rate)?

What is the tax treatment for qualified small business stock acquired in 2014 and held for more than five years and what is the tax treatment if held for less than five years?

When a taxable bond is issued at a premium, the taxpayer must calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

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?

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

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters