Exam 16: Investment and Personal Financial Planning

Last year, Mr. Margot purchased a limited interest in a business partnership, which is her only passive activity. Last year, she was allocated $14,900 of the partnership's ordinary business loss. This year, she was allocated $7,700 of the partnership's ordinary business income. Which of the following statements is false?

This year, Ms. Kwan recognized a $16,900 net long-term capital loss. Which of the following statements is true?

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?

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.

Mr. Johnson borrowed money to buy Chicago municipal bonds. This year, he paid $2,000 of interest on his loan and earned $3,500 of interest income from the bonds. None of the interest expense is deductible.

As a general tax planning rule, an individual should sell assets that have declined in value prior to death and keep appreciated property to transfer to his heirs at his death.

Ms. Adair, a single individual, has $218,000 AGI, which includes $43,000 net investment income. Compute Ms. Adair's unearned income Medicare contribution tax.

This year, Mr. Chester gave $50,000 to an old friend who has no legal obligation to repay the money. The entire $50,000 is a taxable gift.

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?

Which of the following statements about an investment in undeveloped land is false?

Mr. Adams paid $53,500 in premiums on a whole life insurance policy. When he canceled the policy, he received its cash surrender value of $61,600. He must recognize $61,600 of income as a result of the cancellation.

This year, Mr. and Mrs. Lebold paid $3,100 investment interest expense. They earned $4,750 investment income consisting of $1,900 interest and $2,850 qualified dividends, and they incurred no investment expenses. Which of the following statements is true?

Mr. and Mrs. Golding own 13,850 shares in PTJ mutual fund. This year, they received a $6,390 cash distribution from PTJ. Which of the following statements is false?

Which of the following does not reduce a decedent's taxable estate?

Three years ago, Mr. Lewis paid $40,000 for a newly issued corporate bond with a $50,000 stated redemption value. This year, he sold the bond for $43,900. Through date of sale, Mr. Lewis recognized $940 of the original issue discount (OID) as accrued interest income. Compute his gain or loss on sale.

Tom Johnson, whose marginal tax rate on ordinary income is 35%, sold four investment assets resulting in the following capital gains and losses. How much of Tom's net capital gain is taxed at 15%?

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.

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

Ten years ago, Elaine paid $10 per share for 2,000 shares of Lazlo common stock. This year, Elaine learned that Lazlo is in bankruptcy and can pay only 40% of its outstanding debt. What are the tax consequences to Elaine of Lazlo's bankruptcy?

Which of the following statements about Section 1244 stock is true?