Question 1

All life insurance proceeds given to the beneficiary at the time of death of the insured are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 2

Maximum yearly contributions per beneficiary to Coverdell Savings Accounts are limited to:

Accepted Answer

A) $1,500 
B) $2,000 
C) $5,000 
D) No limit on amount you contribute yearly 
E) None of these

Question 3

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

Accepted Answer

A) a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying 
B) cash contributions to the activity 
C) cash distributions from the activity 
D) a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying and cash contributions to the activity 
E) a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying and cash distributions from the activity

Question 4

Long-term capital gains 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.

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

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

Accepted Answer

A) True 
 B)False

Question 7

Nondeductible investment expenses (other than investment interest expenses) are carried forward indefinitely.

Accepted Answer

A) True 
 B)False

Question 8

When considering tax-favored investments,taxpayers must not only look at explicit taxes but also implicit taxes to properly compare them with other less favorably taxed investments.Generally speaking,how do explicit and implicit taxes affect the investment decisions of high and low marginal rate taxpayers?

Accepted Answer

The answer of When considering tax-favored investments,taxpayers must not only...

Question 9

What is the correct order of the loss limitation rules?

Accepted Answer

A) tax basis,at-risk amount,passive loss limits 
B) at-risk amount,tax basis,passive loss limits 
C) passive loss limits,at-risk amount,tax basis 
D) tax basis,passive loss limits,at-risk amount 
E) passive loss limits,tax basis,at-risk amount

Question 10

Phil and Emily Brooks have three sons,Jason,16,Tom,12,and Adam,10.They create a Colorado 529 plan for each of their sons by investing $10,000 in three different plans.Each of these investments yields a constant return of 6.5 percent.When they turned 18,Jason and Adam withdrew the funds in their 529 plans and used the money for higher education expenses while Tom withdrew the funds in his 529 plan to start a new business.Assuming that each of the sons have a 15 percent marginal tax rate when they turn 18,how much money will each of the three boys have after paying all applicable taxes due? (Round all interim and final calculations to the nearest whole number)

Accepted Answer

The answer of Phil and Emily Brooks have three sons,Jason,16,Tom,12,and...

Question 11

The investment interest expense deduction is limited to the amount of net investment income for the year.

Accepted Answer

A) True 
 B)False

Question 12

Interest earned on U.S.savings bonds is interest received at sale or maturity but must be taxed annually.Taxpayers may recognize interest income when they redeem the bonds or may elect to include the increase in bond redemption value in income each year.

Accepted Answer

A) True 
 B)False

Question 13

When a bond is purchased in the secondary bond market at a discount,the amount of discount treated as interest income when the bond is sold prior to maturity is the:

Accepted Answer

A) market premium 
B) market discount 
C) accrued market premium 
D) accrued market discount 
E) None of these

Question 14

To qualify under the passive activity rental real estate exception,the taxpayer must (1) own at least 15 percent of the property and (2) participate in the process of making management decisions.

Accepted Answer

A) True 
 B)False

Question 15

Describe the three main loss limitations that taxpayers must overcome before deducting losses allocated to them from a specific activity.

Accepted Answer

The answer of Describe the three main loss limitations that...

Question 16

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 these sources of income to ordinary tax rates.

Accepted Answer

A) True 
 B)False

Question 17

What is the tax treatment for qualified small business stock acquired in 2013 and held for more than five years and what is the tax treatment if held for less than five years?

Accepted Answer

The answer of What is the tax treatment for qualified...

Question 18

Tom,from Nebraska,and Jill,from Missouri,recently got married.To earn a decent return on all their wedding gifts,they decide to invest in some municipal bonds issued by the state of Missouri.Assuming they both qualify as Missouri residents,the bond interest Tom and Jill earn will be subject to the following taxes:

Accepted Answer

A) federal income taxes only 
B) federal and Missouri state income taxes 
C) Missouri state income taxes only 
D) Nebraska state income taxes only 
E) None of these

Question 19

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

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

Exam 11: Investments

All life insurance proceeds given to the beneficiary at the time of death of the insured are excluded from gross income.

Maximum yearly contributions per beneficiary to Coverdell Savings Accounts are limited to:

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

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

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

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

Nondeductible investment expenses (other than investment interest expenses) are carried forward indefinitely.

What is the correct order of the loss limitation rules?

The investment interest expense deduction is limited to the amount of net investment income for the year.

Interest earned on U.S.savings bonds is interest received at sale or maturity but must be taxed annually.Taxpayers may recognize interest income when they redeem the bonds or may elect to include the increase in bond redemption value in income each year.

When a bond is purchased in the secondary bond market at a discount,the amount of discount treated as interest income when the bond is sold prior to maturity is the:

To qualify under the passive activity rental real estate exception,the taxpayer must (1) own at least 15 percent of the property and (2) participate in the process of making management decisions.

Describe the three main loss limitations that taxpayers must overcome before deducting losses allocated to them from a specific activity.

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 these sources of income to ordinary tax rates.

What is the tax treatment for qualified small business stock acquired in 2013 and held for more than five years and what is the tax treatment if held for less than five years?

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

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