Exam 16: Investment and Personal Financial Planning

Sixteen years ago, Ms. Herbert purchased an annuity for $96,000. Beginning in September of this year, the annuity began paying Ms. Herbert $4,000 per month for the rest of her life. Based on her age, Ms. Herbert's expected return is $300,000. How much of the $16,000 that she received this year is included in taxable income?

Two years ago, Mr. Young paid $40,000 to buy a publicly traded corporate bond through his broker. The bond's stated redemption value was $45,000. This year, Mr. Young sold the bond for $47,100. Compute and characterize his gain or loss on sale.

Mr. Carp, a single taxpayer, recognized a $44,000 long-term capital gain, a $12,000 short-term capital gain, and a $10,000 long-term capital loss. Compute Mr. Carp's income and Medicare contribution tax if his taxable income before consideration of his capital transactions is $465,000, none of which is investment income.

Qualified dividend income earned by an individual taxpayer is taxed at a maximum income tax rate of 20%.

Brokerage fees paid when stock is purchased are added to the basis of the stock.

Gift tax is based on the donor's adjusted tax basis in the transferred property.

Mr. and Mrs. Bolt's joint return reports $267,500 AGI, which includes $13,300 net investment income. Compute the couple's unearned income Medicare contribution tax.

All gratuitous transfers of property are subject to gift tax.

The interest earned on a state or local government bond is exempt from federal taxation.

The tax consequences of a business activity are generally the same as the tax consequences of an investment activity.

The unearned income Medicare contribution tax applies only to individual taxpayers whose marginal income tax rate is 39.6%.

Mr. and Mrs. Philips recognized the following capital gains and losses this year. Their AGI before consideration of these gains and losses was $140,000. Compute their AGI.

Material participation in a business activity means that the individual is involved in the day-to-day operations on a regular, continuous, and substantial basis.

Mrs. Heyer inherited real estate from her mother. The mother's basis in the real estate was $382,000, and the fair market value at the date of the mother's death was $900,000. The mother's taxable estate was only $2.4 million, so the estate did not owe any federal estate tax. This year, Mrs. Heyer sold the real estate for $875,000. Compute her gain or loss recognized on sale.

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

Mr. and Mrs. Nelson operate a small business as a sole proprietorship. This year, they have the following tax information. Compute Mr. and Mrs. Nelson's AGI.

An owner of undeveloped land held for investment must capitalize the property taxes paid on the land each year.

Mr. Moyer owns residential rental property. This year, he received $7,000 revenue from the tenants and incurred $14,900 rental expenses. Mr. Moyer must include $7,000 in gross income and is allowed only $7,000 of above-the-line deductions for the expenses.

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 $3.5 million to his surviving spouse. He left the remainder of the estate to his children. Compute Mr. Lainson's taxable estate.

Ms. Beal recognized a $42,400 net long-term capital gain and a $33,000 net short-term capital loss this year. What is her current net income tax cost from her capital transactions if her marginal rate on ordinary income is 39.6%?