Exam 16: Investment and Personal Financial Planning

Lindsey owns and actively manages an apartment complex. This year, the complex generated a $40,300 net loss. If Lindsey's AGI before considering this loss is $118,200 and she owns no other passive activities, how much of the loss is deductible this year?

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.

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

All gratuitous transfers of property are subject to gift tax.

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?

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?

Gain on sale of qualified small business stock is taxed at a maximum rate of 15%.

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

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.

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. McCann died this year. During his lifetime, he made taxable gifts significantly in excess of his lifetime exclusion. Mr. McCann's taxable estate was $21.9 million. Compute the estate tax on this estate.

Mr. and Mrs. Perry own stock in an S corporation, which is their only passive activity. They have an $8,200 passive activity loss carryforward into this year. This year, the Perrys are allocated a $1,600 share of corporate ordinary business income. In December of this year, they recognize a $3,500 long-term capital gain on the sale of their entire stock interest. How much of their loss carryforward can the Perrys deduct this year?

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.

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.

Ms. Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items. If Ms. Watts materially participates in the business of both corporations, compute her AGI.

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

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.

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?

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.

Which of the following statements about annuity contracts is true?