Exam 11: Investments

Cory recently sold his qualified small business stock (acquired in 2014) for $90,000 after holding it for ten years. His basis in the stock is $40,000. Assuming his marginal tax rate is 35 percent, how much tax will he owe on the sale?

The investment interest expense deduction is limited to the amount of net investment income for the year.

Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($15,000) loss; however, Michelle has sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $115,000 of salary, $10,000 of long-term capital gains, $3,000 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct?

Life insurance policies have nontax factors that limit their desirability as an investment vehicle. Some of these factors include:

The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:

Describe the three main loss limitations that taxpayers must overcome before deducting losses allocated to them from a specific activity.

One primary difference between corporate and U.S. Treasury bonds is:

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

Jim (life expectancy is 20 years) decides to purchase a life insurance policy for $75,000 that promises a 9 percent annual return. Jim decides to cash in the policy after five years while still living. Assuming Jim's marginal tax rate is 35 percent, what are his after-tax proceeds? (Round all interim calculations to the nearest whole number)

When electing to include long-term capital gains and qualified dividends in net investment income, taxpayers must include all long-term capital gains and dividends recognized for that year.

Mr. and Mrs. Smith purchased 100 shares of stock for $45 per share on June 30, 20X6. On March 30, 20X8, the Smith family decides to sell these shares for $30 generating a loss of $15 per share. On April 15, 20X8, the Smith family realized they made a mistake and repurchased 100 shares for $35 per share. When will the Smith family receive a tax benefit for the loss on the March 30, 20X8 sale?

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

Investment expenses treated as miscellaneous itemized deductions do not include:

Kerri, a single taxpayer who itemizes deductions on Schedule A, incurs $15,000 of interest expense on funds borrowed to acquire taxable bonds. Kerri also has $20,000 of taxable interest income for the year. Assume Kerri is in a 30% marginal tax bracket. How much of the interest expense can she deduct? Assuming the same facts except that the $20,000 of investment income is a qualifying dividend rather than taxable interest income, what should Kerry do if she wants to minimize her current year tax liability?

To qualify under the passive activity rental real estate exception, the taxpayer must (1) own at least 15 percent of the property and (2) participate in the process of making management decisions.

When calculating net investment income, gross investment income includes:

Investment expenses and investment interest expense are for AGI deductions.

Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

When 529 plan distributions are not used for qualified higher education expenses, these distributions are subject to an additional penalty of:

What are the tax and nontax consequences associated with purchasing a whole life insurance policy on your life?