Exam 16: Investment and Personal Financial Planning

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

At the beginning of the year, Ms. Faro paid $15,000 for 750 shares of Gravois stock. She instructed her broker to reinvest any dividends in additional Gravois shares. Her Form 1099-DIV reported that she earned $820 dividend income which purchased 39 additional shares. Which of the following statements is true?

Up to $100,000 of loss recognized on the sale of Section 1244 stock by a married individual filing a joint return is characterized as ordinary loss.

Jane, a cash basis individual, purchased a publicly traded bond at a $6,000 market discount. Which of the following statements is true?

In 2011, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in additional shares. In 2011 and 2012, she received Form 1099s reporting the following. If Mrs. Owens sells her 3,390 shares in 2013 for $22 per share, compute her recognized gain.

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.

Investment expenses are a miscellaneous itemized deduction subject to the 2% AGI limitation.

Which of the following statements about investment interest expense is true?

Mr. and Mrs. Gupta want to make cash gifts to each of their four children, the children's four spouses, and three grandchildren. Compute the total amount that the Guptas can transfer to their younger-generation family members without making a taxable gift for the year.

Individual taxpayers may carry nondeductible capital losses forward indefinitely.

In 2011, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in additional shares. In 2011 and 2012, she received Form 1099s reporting the following. If Mrs. Owens sells 1,000 shares in 2013 for $22 per share and uses the average basis method, compute her recognized gain.

Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. She also paid $660 of management fees that were fully deductible on Schedule A. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

Mr. Ames, an unmarried individual, made a gift of real estate to his nephew. Compute the amount subject to the federal gift tax in each of the following situations. a. FMV of the real estate was $1,800,000, and the transfer was Mr. Ames' first taxable gift. b. FMV of the real estate was $7,250,000 and the transfer was Mr. Ames' first taxable gift. c. FMV of the real estate was $2,300,000. Two years ago, Mr. Ames made his first taxable gift of marketable securities with a $3,920,000 FMV in excess of the annual exclusion.

Investors must hold qualified small business stock for more than five years in order to exclude a percentage of the gain on sale of such stock from gross income.

Cash basis individuals must accrue market discount on a bond as annual interest income over the life of the bond.

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

Two years ago, James loaned $60,000 to his friend. The debt is now uncollectible. If the loan created a bona fide debt, James recognizes a short-term capital loss.

The interest earned on investments in U.S. debt obligations is subject to state taxation.

Which of the following statements about investment property is false?

The tax rate on capital gains is determined solely by reference to the capital asset's holding period.