Exam 11: Investments

§529 plans are limited to a yearly contribution of $2,000 for each beneficiary and can only be used to pay for qualified educational costs incurred from kindergarten through 12th grade.

Maximum yearly contributions per beneficiary to Coverdell Savings Accounts are limited to:

Compare and contrast the advantages and disadvantages of Coverdell Educational Savings Plans and 529 Plans.

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?

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Sarantuya, a college student, feels that now is a good time to buy stocks. However, because she doesn't have any savings, she decides to borrow $15,000 at an annual interest rate of 8 percent. She must make an interest-only payment each year for five years plus repay the entire principal in year five. On August 1, 20X8 when Sarantuya obtained the loan, Sarantuya invested $10,000 in several individual stocks and used the remaining $5,000 to pay her tuition for the year. Assuming Sarantuya's net investment income this year is greater than her investment interest expense this year, how much investment interest expense can she deduct in 20X8?

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

On the sale of a passive activity, any suspended losses cannot be used to offset income from:

John holds a taxable bond and a municipal bond. Which fees are considered part of John's investment expense?

When a bond is purchased in the secondary bond market at a discount, the amount of discount treated as interest income when the bond is sold prior to maturity is the:

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?

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

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

When considering tax-favored investments, taxpayers must not only look at explicit taxes but also implicit taxes to properly compare them with other less favorably taxed investments. Generally speaking, how do explicit and implicit taxes affect the investment decisions of high and low marginal rate taxpayers?

Generally, interest income is taxed at preferential capital gains rates and dividend income is taxed at ordinary rates.

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

If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return, what investment time period will give Jim the greatest after-tax return?

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

Losses associated with personal-use assets, sales to related parties, and wash sales are not currently deductible.

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