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Exam 7: Investments

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Question 1

Multiple Choice

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Alain Mire files a single tax return and has adjusted gross income of $304,000. His net investment income is $53,000. What is the additional tax that Alain will pay on his net investment income for the year?

A) $0.
B) $2,014.
C) $3,952.
D) $1,938.
E) None of the choices are correct.

F) A) and E)
G) A) and D)

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A

Question 2

True/False

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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.

A) True
B) False

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Question 3

Multiple Choice

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Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $20,000 of qualified nonrecourse debt and $20,000 of debt Sue is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of both types of debt, resulting in a tax basis of $9,000 and an at-risk amount of $7,000. During the year, ABC LP generated a ($90,000) loss. How much of Sue's loss is disallowed due to her tax basis or at-risk amount?

When electing to include preferentially taxed capital gains and qualified dividends in net investment income, taxpayers must include all preferentially taxed capital gains and qualified dividends recognized for that year.

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 $1,500 interest income. Bob's expenses for the year consist of $800 in investment advice feesand $250 in tax return preparation fees. What is Bob's investment expense deduction?

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

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

The Crane family recognized the following types of investment income during 20X6: (1)$1,440 qualified dividends, (2)$2,840 long-term capital gains, and (3)$690 taxable interest. Additionally, the Crane family has $1,300 in investment expenses for the year. The Crane family paid $2,485 in investment interest 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?

Two advantages of investing in capital assets are (1)gains are generally deferred and (2)gains are generally taxed at preferential rates.

Kerri, a single taxpayer who itemizes deductions on Schedule A, incurs $22,000 of interest expense on funds borrowed to acquire taxable bonds. Kerri also has $23,500 of taxable interest income for the year. Assume Kerri is in a 32 percent marginal tax bracket. How much of the interest expense can she deduct? Assuming the same facts except that the $23,500 of investment income is a qualifying dividend rather than taxable interest income, what should Kerry do if she wants to minimize her current-year tax liability?

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

Michelle is an active participant in the rental condominium property she owns. During the year, the property generates a ($18,500) loss; however, Michelle has sufficient tax basis and at-risk amounts to absorb the loss. If Michelle has $122,000 of salary, $10,700 of long-term capital gains, $3,700 of dividends, and no additional sources of income or deductions, how much loss can Michelle deduct?

Which of the following is not a tax advantage of a Series EE savings bond?

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 amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:

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?

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. Assuming Sarantuya's investment income this year is greater than her investment interest expense this year, how much investment interest expense can she deduct in 20X8? (Round your intermediate calculations to the nearest whole percent.)

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:

Henry, a single taxpayer with a marginal tax rate of 35 percent(taxable income is $300,000 before considering any of the items below), sold the following assets during the year: *$25,000 of the gain is a 25 percent gain. The remaining gain is 0/15/20 percent gain. What tax rate(s)will apply to Henry's capital gains or losses?

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.