Exam 11: Investments

What rate should be used when calculating the after-tax future value of investments with a constant rate of return that is taxed annually?

Which taxpayer would not be considered a material participant of an activity?

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 is the correct order of the loss limitation rules?

Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses.

What explicit tax rate would keep Jason indifferent between purchasing a municipal bond with a 3.0 percent return and a taxable bond with a 4.5 percent before-tax return? (Round your answer to the nearest percent)

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

What impact does an investment time horizon have on the after-tax returns from a portfolio producing interest and dividend income annually?

Scott Bean is a computer programmer and incurred the following transactions last year. Sales Price Basis Purchased Sold Provo City Bonds* \ 10,000 \ 5,000 11/1/2010 5/2/2014 Cisco Preferred Stock 25,000 6,000 7/15/2005 1/12/2014 Dreyer's Grand Ice Cream Stock 14,000 10,000 7/1/2013 4/20/2014 Novell Common 2,000 10,000 2/12/2011 11/29/2014 IBM Stock 4,000 3,000 8/2/2002 5/2/2014 ABC Common 6,000 9,000 5/30/2012 10/20/2014 Prior year ST Capital Loss Carryforward 5,500 Prior year LT Capital Loss Carryforward 5,000 Purchased when originally issued by Provo City What is the Net Short-Term Capital Gain/Loss reported on the 2014 Schedule D? What is the Net Long-Term Capital Gain/Loss reported on the 2014 Schedule D? What amount of capital gain is subject to the preferential capital gains rate?

Capital loss carryovers for individuals are carried forward indefinitely.

The Crane family recognized the following types of investment income during 20X6: (1) $1,500 qualified dividends, (2) $3,000 long-term capital gains, and (3) $850 taxable interest. Additionally, the Crane family has $500 in investment expenses and their other miscellaneous itemized deductions exceed 2% of their AGI for the year. The Crane family paid $3,333 in investment interest expense during 20X6. What is the best option for the Crane family if they want to maximize their deduction in 20X6 for investment interest expense? Show all possibilities.

If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

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?

Compare and contrast how interest income is reported for the following types of bonds: (a) bond originally issued at a discount, (b) bond originally issued at a premium, (c) bond purchased at a discount in a secondary market (d) bond purchased at a premium in a secondary market.

Given that losses from passive activities can only offset income from passive activities unless the passive activity is sold, what types of activities are not considered to be passive? Name at least three ways a taxpayer may be treated as an active participant in an activity.

Two advantages of investing in capital assets are (1) gains are generally deferred and (2) gains are generally taxed at preferential rates.

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?

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?

Bob Brain files a single tax return and decides to itemize his deductions. Bob's income for the year consists of $75,000 of salary, $3,000 long-term capital gain, and $1,500 interest income. Bob's expenses for the year consists of $800 investment advice fees, $700 unreimbursed employee business expenses (a miscellaneous itemized deduction), and $250 tax return preparation fees. What is Bob's actual deduction for miscellaneous itemized deductions?

On December 1, 20X7, George Jimenez needed a little extra cash for the upcoming holiday season, and sold 250 shares of Microsoft stock for $50 per share less a broker's fee of $200 for the entire sale transaction. Prior to the sale, George held the following blocks of Microsoft stock (associated broker's fee paid at the time of purchase): Acquisition Date Number of Shares Market Price When Acquired Broker's Fee 1/1/X4 300 \ 35 per share \ 250 6/30/ 300 \ 45 per share \ 250 If his goal is to minimize his current capital gain, how much capital gain will George report from the sale?