Exam 7: Investments

Losses associated with personal-use assets, sales to related parties, and wash sales are not currently deductible.

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?

Scott Bean is a computer programmer and incurred the following transactions last year. *Purchased when originally issued by Provo City What is the Net Short-Term Capital Gain/Loss reported on the 2018 Schedule D? What is the Net Long-Term Capital Gain/Loss reported on the 2018 Schedule D? What amount of capital gain is subject to the preferential capital gains rate?

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?

Assume that Joe (single) has a marginal tax rate of 37 percent and decides to make the election to include preferentially-taxed capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

When a taxable bond is issued at a premium, the taxpayer may elect to calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

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.

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:

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

John holds a taxable bond and a municipal bond. Which are considered part of John's deductible investment interest expense?

Which taxpayer would not be considered a material participant of an activity?

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

Brandon and Jane Forte file a joint tax return and decide to itemize their deductions. The Forte's income for the year consists of $120,000 in salary, $1,000 interest income, $1,500 nonqualifying dividends, and $1,100 long-term capital gains. The Forte's expenses for the year consist of $3,000 investment interest expense and $900 tax preparation fees. Assuming that the Forte's marginal tax rate is 30% and they make no special elections, what is the amount of investment interest expense deduction for the year?

Roy, a resident of Michigan, owns 25 percent of a fourplex in the nearby college town of Ann Arbor with three other friends. The fourplex is rented to students who attend the University of Michigan. Roy's responsibility is to approve new tenants each year and take care of any maintenance issues. During the year, the rental property generated a $25,000 loss, which was split equally among Roy and his three friends. Assuming Roy's only source of income was $145,000 of salary, how much of the rental loss can Roy deduct this year and what amount must be carried forward?

Qualified dividends are always taxed at a 15 percent preferential rate.

How are individual taxpayers' investment expenses and investment interest expense treated for tax purposes?

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

Kevin bought 200 shares of Intel stock on January 1, 2018 for $50 per share with a brokerage fee of $100. Then, Kevin sells all 200 shares for $75 per share on December 12, 2018. The brokerage fee on the sale was $150. What is the amount of the gain/loss Kevin must report on his 2018 tax return?

A taxpayer's at-risk amount in an activity is increased by:

Net investment income is always less than gross investment income.