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Exam 7: Investments

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Question 31

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Interest earned on U.S. savings bonds is interest received at sale or maturity but must betaxed annually.

A) True
B) False

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Question 32

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Sarantuya, a college student, feels that now is a good time to buy stocks. However, because she doesn't have any savings, she decides to borrow $15,000 at an annual interest rate of 8 percent. She must make an interest-only payment each year for five years plus repay the entire principal in year five. On August 1, 20X8 when Sarantuya obtained the loan, Sarantuya invested $10,000 in several individual stocks and used the remaining $5,000 to pay her tuition for the year. AssumingSarantuya's net investment income this year is greater than her investment interest expense this year, how much investment interest expense can she deduct in 20X8?

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Sarantuya is allowed to deduct up to $33...

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Question 33

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

Mr. and Mrs. Smith purchased 100 shares of stock for $45 per share on June 30, 20X6. On March30, 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, 20X8sale?

On January 1, 20X8, Jill contributed $18,000 of cash to the XYZ limited partnership for a 25percent 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 CityWhat is the Net Short-Term Capital Gain/Loss reported on the 2017 Schedule D? What is the Net Long-TermCapital Gain/Loss reported on the 2017 Schedule D? What amount of capital gain is subject to the preferential capital gains rate?

Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses or until the taxpayer disposes of that activity.

Generally, losses from rental activities are considered to be active losses.

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

On December 1, 20X7, George Jimenez needed a little extra cash for the upcoming holiday season, and sold250 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?

What are the rules limiting the amount of capital losses a taxpayer may deduct in a given year?Name at least three.

When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?

Cory recently sold his qualified small business stock (acquired in 2017) for $90,000 after holding it for ten years. His basis in the stock is $40,000. Assuming his marginal tax rate is 35 percent, how much tax will he owe on the sale?

In the current year, Norris, an individual, has $50,000 of ordinary income, a Net ShortTerm 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:

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 $1,000 long-term capital gains. The Forte's expenses forthe 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?

The maximum amount of net capital losses individual taxpayers may deduct against their ordinary income per year is:

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:

Bob Brain files a single tax return and decides to itemize his deductions. Bob's income for the year consists of $75,000 of salary, $3,000 long-term capital gain, and $1,500interest income. Bob's expenses for the year consists of $800 investment advice fees,$700 unreimbursed employee business expenses (a miscellaneous itemized deduction) , and $250 tax return preparation fees. What is Bob's actual deduction for miscellaneous itemized deductions?

The Crane family recognized the following types of investment income during 20X6: (1) $1,500 qualified dividends, (2) $3,000 long-term capital gains, and (3) $850 taxable interest. Additionally, the Crane family has $500 in investment expenses and their other miscellaneous itemized deductions exceed 2% of their AGI for the year. The Crane family paid $3,333 in investmentinterest expense during 20X6. Calculate the different possibilities to determine the maximum deduction for investment interest expense for the Crane family in 20X6. From these possibilities, which provides the maximum deduction?

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