Exam 16: Investment and Personal Financial Planning

If an investor sells some of the securities in a block but can't identify which ones were sold, she is presumed to have sold the securities with the latest acquisition date.

The federal taxable estate of a decedent can exceed the value of the probate estate.

Six years ago, Mr. Ahmed loaned $10,000 to a neighbor in exchange for an interest-bearing debt obligation. This year, the neighbor informed Mr. Ahmed that he was defaulting on the debt. What are the tax consequences to Mr. Ahmed of this bad debt?

Mr. Lainson died this year on a date when the total FMV of his property was $12 million and his debts totaled $450,000. His executor paid $15,000 of funeral expenses and $50,000 of accounting and legal fees to settle the estate. Mr. Lainson bequeathed $1 million to Villanova University, $200,000 to the Lutheran church, and $3 million to his surviving wife. He left the remainder of the estate to his children. Compute Mr. Lainson's taxable estate.

Bess gave her grandson ten acres of undeveloped land. Bess' tax basis in the land was $35,000, and its fair market value at date of gift was $175,000. Two years after receiving the land, the grandson sold it for $200,000. Compute his recognized gain on sale.

An individual with a 15% rate marginal tax rate on ordinary income will pay no tax on long-term capital gains.

Which of the following reduce a decedent's taxable estate?

Ms. Cowler owns stock in Serzo Inc., an S corporation, and an interest in OTW Partnership. This year, Ms. Cowler had the following income and loss items. If Ms. Cowler's interests in Serzo and OTW are passive activities, compute her AGI.

A beneficiary's basis of inherited property equals the decedent's adjusted basis immediately prior to death.

The income generated from an investment activity is primarily attributable to invested capital rather than the owner's personal involvement in the activity.

Only accrual basis individuals are required to accrue original issue discount on a bond as annual interest income.

Unrecaptured Section 1250 gain is taxed at a maximum rate of 28%.

Electing to reinvest dividends in additional shares of stock does not defer income recognition.

In 2010, Mr. Yang paid $160,000 for a corporate bond with a $200,000 stated redemption value. Based on the bond's yield to maturity, amortization of the $40,000 discount was $3,024 in 2010 and $2,960 in 2011. Mr. Yang sold the bond for $169,500 in 2012. What are his tax consequences in each year assuming that: a. He bought the newly issued bond from the corporation? b. He bought the bond in the public market through his broker?

Fifteen years ago, Lenny purchased an insurance policy on his own life. The policy provides a $3 million death benefit. Lenny has paid $682,000 of premiums, and the cash surrender value of the policy is $725,000. He plans to liquidate the policy to generate cash for his business. If Lenny's marginal tax rate is 35%, how much after-tax cash will the liquidation generate?

In 2010, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in additional shares. In 2010 and 2011, she received Form 1099s reporting the following. If Mrs. Owens sells 1,000 shares in 2012 for $22 per share and uses the average basis method, compute her recognized gain.

Which of the following statements about the individual capital gains and losses is false?

Which of the following statements about the federal gift tax is false?

Mr. Quinn recognized a $900 net short-term capital gain and a $1,380 long-term capital gain this year. Which of the following statements is false?

Mr. Gordon, a resident of Pennsylvania, paid $20,000 for a bond issued by Delaware. This year, he received $800 of interest on the bond. His marginal state tax rate is 7%, and under Pennsylvania law, interest on debt obligations issued by another state is taxable. Mr. Gordon can deduct state income tax on his federal return, and his marginal federal tax rate is 35%. Computer his after-tax rate of return on the bond.