Question 1

Which of the following portfolio investments is incorrectly characterized (Investment - Income Type - Timing of Taxation - Tax Rate) ?

Accepted Answer

A) Growth stock - appreciation in capital assets - current - capital gains 
B) Municipal bonds - tax-exempt income - never - zero 
C) Savings account - taxable interest - current - ordinary income 
D) None of these. 
A) Growth stock - appreciation in capital assets - current - capital gains 
B) Municipal bonds - tax-exempt income - never - zero 
C) Savings account - taxable interest - current - ordinary income 
D) None of these. A

Question 2

Life insurance policies have nontax factors that limit their desirability as an investment vehicle.Some of these factors include:

Accepted Answer

A) waiting for the insured individual's death 
B) low expense to return ratios 
C) high commission costs 
D) waiting for the insured individual's death and low expense to return ratios 
E) waiting for the insured individual's death and high commission costs 
A) waiting for the insured individual's death 
B) low expense to return ratios 
C) high commission costs 
D) waiting for the insured individual's death and low expense to return ratios 
E) waiting for the insured individual's death and high commission costs E

Question 3

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 capital gains and qualifying dividends in net investment income,these income items must be taxed at ordinary rates rather than at the preferential capital gains rates.This detriment may be more than offset by the additional investment interest expense that becomes deductible as net investment income is increased by virtue of making the election.Taxpayers considering this election should compare the current benefit of making this election with the loss of future benefits from taking the investment interest expense deduction in the future.Fortunately,the election doesn't require all capital gains and qualifying dividends to be taxed at ordinary rates.Instead,taxpayers can elect to include only the amount of long-term capital gains and qualifying dividends that will provide the greatest current benefit.

Question 4

Michelle is an active participant in the rental condominium property she owns.During the year,the property generates a ($15,000) loss;however,Michelle has sufficient tax basis and at-risk amounts to absorb the loss.If Michelle has $115,000 of salary,$10,000 of long-term capital gains,$3,000 of dividends,and no additional sources of income or deductions,how much loss can Michelle deduct?

Accepted Answer

A) Zero;losses from rental property are passive losses and can only be offset by passive income. 
B) $4,000 
C) $11,000 
D) $15,000 
E) None of these 
A) Zero;losses from rental property are passive losses and can only be offset by passive income. 
B) $4,000 
C) $11,000 
D) $15,000 
E) None of these

Question 5

Investment expenses treated as miscellaneous itemized deductions do not include:

Accepted Answer

A) expenses incurred to generate tax-exempt income 
B) investment interest expense 
C) expenses for investment advice 
D) expenses incurred to generate tax-exempt income and investment interest expense 
E) investment interest expense and expenses for investment advice 
A) expenses incurred to generate tax-exempt income 
B) investment interest expense 
C) expenses for investment advice 
D) expenses incurred to generate tax-exempt income and investment interest expense 
E) investment interest expense and expenses for investment advice

Question 6

Which of the following is not a tax advantage of a Series EE Saving Bond?

Accepted Answer

A) taxes are paid as the original issue discount on the bond is amortized 
B) interest earned is exempt from state taxation 
C) taxes are deferred until the bond is cashed in at maturity 
D) interest is exempt from federal taxation when used for qualifying educational expenses 
E) None of these 
A) taxes are paid as the original issue discount on the bond is amortized 
B) interest earned is exempt from state taxation 
C) taxes are deferred until the bond is cashed in at maturity 
D) interest is exempt from federal taxation when used for qualifying educational expenses 
E) None of these

Question 7

Generally,interest income is taxed at preferential capital gains rates and dividend income is taxed at ordinary rates.

Accepted Answer

A) True 
 B)False

Question 8

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.Investors must consider implicit as well as explicit taxes.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Qualified dividends are always taxed at a 15 percent preferential rate.Qualified dividends may be taxed at a rate as low as 0 percent depending on the taxpayer's ordinary income tax rate.

Accepted Answer

A) True 
 B)False

Question 11

If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for more than one year,which gain will be taxed at the highest rate at the time of sale?

Accepted Answer

A) gain from investment land 
B) gain from personal-use property 
C) gain from a coin collection 
D) gain from the sale of qualified small business stock held for 3 years 
E) gain attributable to tax depreciation taken on real property 
A) gain from investment land 
B) gain from personal-use property 
C) gain from a coin collection 
D) gain from the sale of qualified small business stock held for 3 years 
E) gain attributable to tax depreciation taken on real property

Question 12

With tax-exempt investment income,an investor's before-tax rate of return is greater than her after-tax rate of return.

Accepted Answer

A) True 
 B)False

Question 13

Investment interest expense does not include:

Accepted Answer

A) interest expense from loans to purchase municipal bonds. 
B) interest expense from loans to purchase corporate bonds. 
C) interest expense from loans to purchase stocks. 
D) interest expense from loans to purchase U.S.savings bonds and interest expense from loans to purchase corporate bonds. 
E) interest expense from loans to purchase corporate bonds and interest expense from loans to purchase stocks. 
A) interest expense from loans to purchase municipal bonds. 
B) interest expense from loans to purchase corporate bonds. 
C) interest expense from loans to purchase stocks. 
D) interest expense from loans to purchase U.S.savings bonds and interest expense from loans to purchase corporate bonds. 
E) interest expense from loans to purchase corporate bonds and interest expense from loans to purchase stocks.

Question 14

On December 1,20X7,George Jimenez needed a little extra cash for the upcoming holiday season,and sold 250 shares of Microsoft stock for $50 per share less a broker's fee of $200 for the entire sale transaction.Prior to the sale,George held the following blocks of Microsoft stock (associated broker's fee paid at the time of purchase) :   If his goal is to minimize his current capital gain,how much capital gain will George report from the sale?

Accepted Answer

Using the specific identificat

Question 15

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 16

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses,and (3) net the outcome to yield a final gain or loss to place on the tax return.

Accepted Answer

A) True 
 B)False

Question 17

Mr.and Mrs.Smith purchased 100 shares of stock for $45 per share on June 30,20X6.On March 30,20X8,the Smith family decides to sell these shares for $30 generating a loss of $15 per share.On April 15,20X8,the Smith family realized they made a mistake and repurchased 100 shares for $35 per share.When will the Smith family receive a tax benefit for the loss on the March 30,20X8 sale?

Accepted Answer

The Smith family will have a ($1,500) lo

Question 18

If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return,what investment time period will give Jim the greatest after-tax return?

Accepted Answer

A) 1 year 
B) 5 years 
C) 10 years 
D) 20 years 
E) All yield the same after-tax return 
A) 1 year 
B) 5 years 
C) 10 years 
D) 20 years 
E) All yield the same after-tax return

Question 19

When the wash sale rules apply,the realized loss is:

Accepted Answer

A) recognized at time of sale 
B) not recognized at time of sale and does not affect basis of newly acquired stock 
C) recognized at time of sale and added to basis of the newly acquired stock 
D) not recognized at time of sale and added to basis of the newly acquired stock 
E) not recognized at time of sale and subtracted from the basis of the newly acquired stock 
A) recognized at time of sale 
B) not recognized at time of sale and does not affect basis of newly acquired stock 
C) recognized at time of sale and added to basis of the newly acquired stock 
D) not recognized at time of sale and added to basis of the newly acquired stock 
E) not recognized at time of sale and subtracted from the basis of the newly acquired stock

Question 20

One primary difference between corporate and U.S.Treasury bonds is:

Accepted Answer

A) Treasury bonds always pay interest periodically 
B) Corporate bonds always pay interest periodically 
C) Interest from Treasury bonds is exempt from federal taxation 
D) Interest from corporate bonds is exempt from state taxation 
E) None of these 
A) Treasury bonds always pay interest periodically 
B) Corporate bonds always pay interest periodically 
C) Interest from Treasury bonds is exempt from federal taxation 
D) Interest from corporate bonds is exempt from state taxation 
E) None of these

Which of the following portfolio investments is incorrectly characterized (Investment - Income Type - Timing of Taxation - Tax Rate) ?

Life insurance policies have nontax factors that limit their desirability as an investment vehicle.Some of these factors include:

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

Investment expenses treated as miscellaneous itemized deductions do not include:

Which of the following is not a tax advantage of a Series EE Saving Bond?

Generally,interest income is taxed at preferential capital gains rates and dividend income is taxed at ordinary rates.

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.Investors must consider implicit as well as explicit taxes.

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

Qualified dividends are always taxed at a 15 percent preferential rate.Qualified dividends may be taxed at a rate as low as 0 percent depending on the taxpayer's ordinary income tax rate.

If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for more than one year,which gain will be taxed at the highest rate at the time of sale?

With tax-exempt investment income,an investor's before-tax rate of return is greater than her after-tax rate of return.

Investment interest expense does not include:

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:

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses,and (3) net the outcome to yield a final gain or loss to place on the tax return.

If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return,what investment time period will give Jim the greatest after-tax return?

When the wash sale rules apply,the realized loss is:

One primary difference between corporate and U.S.Treasury bonds is:

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Tax Overview

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

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Exam 11: Investments

Which of the following portfolio investments is incorrectly characterized (Investment - Income Type - Timing of Taxation - Tax Rate) ?

Life insurance policies have nontax factors that limit their desirability as an investment vehicle.Some of these factors include:

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

Investment expenses treated as miscellaneous itemized deductions do not include:

Which of the following is not a tax advantage of a Series EE Saving Bond?

Generally,interest income is taxed at preferential capital gains rates and dividend income is taxed at ordinary rates.

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.Investors must consider implicit as well as explicit taxes.

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

Qualified dividends are always taxed at a 15 percent preferential rate.Qualified dividends may be taxed at a rate as low as 0 percent depending on the taxpayer's ordinary income tax rate.

If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for more than one year,which gain will be taxed at the highest rate at the time of sale?

With tax-exempt investment income,an investor's before-tax rate of return is greater than her after-tax rate of return.

Investment interest expense does not include:

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:

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses,and (3) net the outcome to yield a final gain or loss to place on the tax return.

If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return,what investment time period will give Jim the greatest after-tax return?

When the wash sale rules apply,the realized loss is:

One primary difference between corporate and U.S.Treasury bonds is:

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Tax Overview

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

Filters