Question 1

What requirements must be satisfied before an investor may receive preferential tax treatment on dividend income, and what preferential treatment will result?

Accepted Answer

A dividend must be a qualified dividend

Question 2

The netting process for capital gains (losses) with 0/15/20 percent, 25 percent, and 28 percent capital assets helps maximize the tax benefit of:

Accepted Answer

A) current year net loss in the 25 percent rate group 
B) net short-term capital losses 
C) long-term capital loss carryovers 
D) current year net loss in the 25 percent rate group and long-term capital loss carryovers 
E) net short-term capital losses and long-term capital loss carryovers 
A) current year net loss in the 25 percent rate group 
B) net short-term capital losses 
C) long-term capital loss carryovers 
D) current year net loss in the 25 percent rate group and long-term capital loss carryovers 
E) net short-term capital losses and long-term capital loss carryovers

Question 3

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Accepted Answer

A) True 
 B)False

Question 4

How can electing to include long-term capital gains and qualifying dividends in the computation of net investment income be beneficial to taxpayers?

Accepted Answer

If taxpayers elect to include long-term

Question 5

A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.

Accepted Answer

A) True 
 B)False

Question 6

On the sale of a passive activity, any suspended losses cannot be used to offset income from:

Accepted Answer

A) active business income 
B) capital gains 
C) interest income 
D) wages and tips 
E) none of these 
A) active business income 
B) capital gains 
C) interest income 
D) wages and tips 
E) none of these

Question 7

Given that losses from passive activities can only offset income from passive activities unless the passive activity is sold, what types of activities are not considered to be passive? Name at least three ways a taxpayer may be treated as an active participant in an activity.

Accepted Answer

To be considered an active participant i

Question 8

Judy, a single individual, reports the following items of income and loss:   
Judy owns 100% of the rental property and actively participates in the rental of the property. Calculate Judy's AGI.

Accepted Answer

$105,000
E

Question 9

Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Click's income for the year consists of $90,000 in salary, $2,000 interest income, $800 long-term capital loss. The Click's expenses for the year consist of $1,500 investment interest expense. Assuming that the Click's marginal tax rate is 35%, what is the amount of their investment interest expense deduction for the year?

Accepted Answer

A) $1,200 
B) $1,500 
C) $2,000 
D) $2,300 
E) None of these 
A) $1,200 
B) $1,500 
C) $2,000 
D) $2,300 
E) None of these

Question 10

Taxpayers may make an election to include long-term capital gains and qualified dividends in net investment income and deduct more investment interest expense currently if they are willing to subject this income to ordinary tax rates.

Accepted Answer

A) True 
 B)False

Question 11

When calculating net investment income, gross investment income includes:

Accepted Answer

A) interest income 
B) net short-term capital gains 
C) non-qualified dividends 
D) royalty income 
E) all of these 
A) interest income 
B) net short-term capital gains 
C) non-qualified dividends 
D) royalty income 
E) all of these

Question 12

Which of the following types of interest income is not taxed as it is earned?

Accepted Answer

A) interest from savings accounts 
B) original issue discounts on corporate bonds 
C) accrued market discount on bonds 
D) interest from money market accounts 
E) all of these 
A) interest from savings accounts 
B) original issue discounts on corporate bonds 
C) accrued market discount on bonds 
D) interest from money market accounts 
E) all of these

Question 13

Dave and Jane file a joint return. They sell a capital asset at a $150,000 loss. Even though they have no capital gains, $6,000 of the loss can still be deducted in the current year.

Accepted Answer

A) True 
 B)False

Question 14

Long-term capital gains for individual taxpayers can be taxed at a maximum rate of:

Accepted Answer

A) 20 percent 
B) 25 percent 
C) 28 percent 
D) Both 20 percent and 28 percent 
E) All of these. 
A) 20 percent 
B) 25 percent 
C) 28 percent 
D) Both 20 percent and 28 percent 
E) All of these.

Question 15

Investment expenses and investment interest expense are for AGI deductions.

Accepted Answer

A) True 
 B)False

Question 16

On January 1, 20X8, Jill contributed $18,000 of cash to the XYZ limited partnership for a 25 percent limited partnership interest. On April 6, 20X8, XYZ, limited partnership distributed $2,000 to Jill. For the year ended December 31, 20X8, Jill received the following income/loss allocations from her partnership investments: (1) XYZ, limited partnership allocated a $5,000 loss to Jill (2) ABC limited partnership allocated $2,300 of income to Jill. How much of the $5,000 loss from XYZ limited partnership can Jill deduct in 20X8?

Accepted Answer

$2,300 of loss from XYZ is deducted in 2

Question 17

Compare and contrast how interest income is reported for the following types of bonds: (a) bond originally issued at a discount, (b) bond originally issued at a premium, (c) bond purchased at a discount in a secondary market, (d) bond purchased at a premium in a secondary market.

Accepted Answer

(A) Bond originally issued at a discount

Question 18

Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

Accepted Answer

A) 20% 
B) 25% 
C) 28% 
D) 35% 
E) None of these 
A) 20% 
B) 25% 
C) 28% 
D) 35% 
E) None of these

Question 19

In the current year, Norris, an individual, has $50,000 of ordinary income, a Net Short Term Capital Loss (NSTCL) of $10,000 and a Net Long Term Capital Gain (NLTCG) of $2,800. From his capital gains and losses, Norris reports:

Accepted Answer

A) an offset against ordinary income of $10,000 
B) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000 
C) an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200 
D) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200 
E) an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200 
A) an offset against ordinary income of $10,000 
B) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000 
C) an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200 
D) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200 
E) an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200

Question 20

Generally, which of the following does not correctly categorize the type of income?

Accepted Answer

A) rental real estate - passive income/loss 
B) salary - active income/loss 
C) dividends - portfolio income/loss 
D) capital losses - passive income/loss 
E) all of these 
A) rental real estate - passive income/loss 
B) salary - active income/loss 
C) dividends - portfolio income/loss 
D) capital losses - passive income/loss 
E) all of these

Exam 7: Investments

What requirements must be satisfied before an investor may receive preferential tax treatment on dividend income, and what preferential treatment will result?

The netting process for capital gains (losses) with 0/15/20 percent, 25 percent, and 28 percent capital assets helps maximize the tax benefit of:

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

How can electing to include long-term capital gains and qualifying dividends in the computation of net investment income be beneficial to taxpayers?

A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.

On the sale of a passive activity, any suspended losses cannot be used to offset income from:

Given that losses from passive activities can only offset income from passive activities unless the passive activity is sold, what types of activities are not considered to be passive? Name at least three ways a taxpayer may be treated as an active participant in an activity.

Judy, a single individual, reports the following items of income and loss: Judy owns 100% of the rental property and actively participates in the rental of the property. Calculate Judy's AGI.

Taxpayers may make an election to include long-term capital gains and qualified dividends in net investment income and deduct more investment interest expense currently if they are willing to subject this income to ordinary tax rates.

When calculating net investment income, gross investment income includes:

Which of the following types of interest income is not taxed as it is earned?

Dave and Jane file a joint return. They sell a capital asset at a $150,000 loss. Even though they have no capital gains, $6,000 of the loss can still be deducted in the current year.

Long-term capital gains for individual taxpayers can be taxed at a maximum rate of:

Investment expenses and investment interest expense are for AGI deductions.

Compare and contrast how interest income is reported for the following types of bonds: (a) bond originally issued at a discount, (b) bond originally issued at a premium, (c) bond purchased at a discount in a secondary market, (d) bond purchased at a premium in a secondary market.

Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

In the current year, Norris, an individual, has $50,000 of ordinary income, a Net Short Term Capital Loss (NSTCL) of $10,000 and a Net Long Term Capital Gain (NLTCG) of $2,800. From his capital gains and losses, Norris reports:

Generally, which of the following does not correctly categorize the type of income?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters