Exam 16: Investment and Personal Financial Planning

Kate recognized a $25,700 net long-term capital gain and a $33,000 net short-term capital loss this year. What is her current net income tax cost or savings from her capital transactions if her marginal rate on ordinary income is 28%?

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

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

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.

An inter vivos transfer is a gratuitous transfer of property by an individual that occurs at death.

Individual taxpayers may carry nondeductible capital losses forward indefinitely.

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?

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

In 2013, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in additional shares. In 2013 and 2014, she received Form 1099s reporting the following. If Mrs. Owens sells her 3,390 shares in 2015 for $22 per share, compute her recognized gain.

The cash surrender value of a life insurance policy is taxable to the policy beneficiary upon the death of the insured individual.

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.

Mr. Gordon, a resident of Pennsylvania, paid $20,000 for a bond issued by Delaware. This year, he received $800 of interest on the bond. His marginal state tax rate is 7%, and under Pennsylvania law, interest on debt obligations issued by another state is taxable. Mr. Gordon can deduct state income tax on his federal return, and his marginal federal tax rate is 35%. Computer his after-tax rate of return on the bond.

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.

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

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.

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

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.

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%?

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

In 2013, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in additional shares. In 2013 and 2014, she received Form 1099s reporting the following. If Mrs. Owens sells 1,000 shares in 2015 for $22 per share and uses the average basis method, compute her recognized gain.