Exam 16: Investment and Personal Financial Planning

In 2001, Mrs. Qualley, contributed $100,000 in exchange for 1,000 shares of Little Corporation, which is a qualified small business. This year, Mrs. Qualley's only capital transaction was the sale of the 1,000 shares of Little qualified small business stock for $180,000. Compute Mrs. Qualley's income tax on her capital gain from this sale.

Twenty years ago, Mr. Wallace purchased a $250,000 insurance policy on his own life and named his daughter as sole beneficiary. He has paid $14,250 total premiums to keep this policy in force. This year, he liquidates the policy for its $20,000 cash surrender value. Which of the following statements is true?

On April 19 of this year, Sandy learned that her stock investment had become worthless. The stock is deemed to be worthless on December 31 of this year.

Mr. Gray recognized a $60,000 loss on sale of his entire interest in a passive activity. He had a $52,000 passive activity loss carryforward from prior years. Mr. Gray can deduct the $52,000 loss in the year of sale.

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

Ms. Plant owns and actively manages an apartment complex. This year, the complex generated a $32,790 net loss. If Ms. Plant's AGI before considering this loss is $196,100 and she owns no other passive activities, how much of the loss is deductible this year?

Which of the following statements about annuity contracts is true?

Emil Nelson paid $174,500 for an annuity that will pay him $1,300 per month for life. Based on Emil's age, his expected return is $405,813. This year, Emil received 12 payments totaling $15,600. How much of this total is taxable income?

In 1996, Mr. Exton, a single taxpayer, contributed $30,000 in exchange for 100 shares of Morton stock. In 2005, he paid $43,000 to another shareholder to purchase 100 more shares of Morton stock. Morton stock qualified as Section 1244 stock when it was issued. This year, Mr. Exton sold his 200 Morton shares for $250 per share. What is the amount and character of Mr. Exton's recognized loss?

Twenty years ago, Mrs. Cole purchased an insurance policy on her own life. Mrs. Cole died this year, and the policy paid the $300,000 death benefit to her son Jeffrey. During her life, Mrs. Cole paid total premiums of $71,200 on the policy. Which of the following statements is true?

Mr. Lee made the following transfers this year. Which of the transfers are treated as gifts for federal tax purposes?

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

Beverly earned a $75,000 salary and recognized a $7,200 loss on the sale of corporate stock this year. Compute her AGI in each of the following independent cases. a. Beverly had no other capital transactions this year. b. Beverly recognized a $13,500 capital gain on the sale of mutual fund shares. c. Beverly received a $9,500 capital gain distribution from a mutual fund and had a $3,200 capital loss carryforward from a previous year.

Ms. Martin received $80,000 from a $100,000 life insurance policy as an accelerated death benefit. None of the $80,000 is taxable to her.

Life insurance proceeds are includible in the taxable estate of the decedent if the decedent was the owner of the policy.

Which of the following are included in a decedent's taxable estate?

Lana owns 50 shares of stock qualifying as Section 1244 stock. If she sells the stock to George, he can also treat the stock as Section 1244 stock.

Mr. Ricardo exchanged 75 shares of Haslet common stock for 516 shares of Newland common stock pursuant to a reorganization of the two corporations. His basis in the Haslet stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

Ms. Mollani owns stock in two S corporations, Aloha and Honu. This year, she had the following income and loss items: Compute Ms. Mollani's AGI under each of the following assumptions. a. She materially participates in Aloha's business but not in Honu's business. b. She materially participates in Honu's business but not in Aloha's business. c. She materially participates in both corporate businesses. d. She does not materially participate in either business.

Frederick Tims, a single individual, sold the following investment assets this year. If Frederick's marginal tax rate on ordinary income is 33%, compute his tax attributable to the above sales.