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Exam 7: Investments

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Question 21

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

A) Attorney and accounting fees on municipal bond.
B) Safe deposit box rental fees on taxable bond.
C) Interest expense on taxable bond.
D) Interest expense on municipal bond.
E) Interest expense on municipal bond and interest expense on taxable bond.

F) B) and D)
G) A) and B)

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Question 22

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Given that losses from passive activities can only offset income from passive activities unless the passive activity is sold, what types of activities are not considered to be passive? Name at least three ways(tests)a taxpayer may be treated as an active participant in an activity.

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To be considered an active participant i...

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Question 23

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Bob Brain files a single tax return and decides to itemize his deductions. Bob's income for the year consists of $75,900 of salary, $2,550 long-term capital gain, and $1,950 interest income. Bob's expenses for the year consist of $900 in investment advice feesand $205 in tax return preparation fees. What is Bob's investment expense deduction?

Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Clicks' income for the year consists of $90,000 in salary, $2,000 interest income, and $800 long-term capital loss. The Clicks' expenses for the year consist of $1,500 investment interest expense. Assuming that the Clicks' marginal tax rate is 35 percent, what is the amount of their 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 $60,000 loss, which was split equally among Roy and his three friends. Assuming Roy's only source of income was $130,000 of salary, how much of the rental loss can Roy deduct this year and what amount must be carried forward?

On January 1, 20X8, Jill contributed $36,000 of cash to the XYZ limited partnership for a 25 percent limited partnership interest. On April 6, 20X8, XYZ limited partnership distributed $3,800 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 $4,600 loss to Jilland (2)ABC limited partnership allocated $2,700 of income to Jill. How much of the $4,600 loss from XYZ limited partnership can Jill deduct in 20X8? Answer Key Test name: chapter 7

On January 1, 20X1, Fred purchased a corporate bond with a face value of $50,000 from the secondary market at a premium. The bond has a coupon rate of 8 percent and matures in five years. The market rate of the bond is a 6 percent annual before-tax return compounded semiannually. If Fred is trying to minimize interest income, what is the least amount of interest income Fred may report on his 20X1 tax return? Present value of $1, Present value of Annuity $1 (Do not round intermediate calculations. Round your final answer to two decimal places.)

The rental real estate exception favors:

A passive activity is any activity that involves a trade or business in which the taxpayer does not materially participate or any rental activity (unless the taxpayer is engaged in a real property trade or business).

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

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

Long-term capital gains (depending on type) for individual taxpayers can be taxed at a maximum rate of:

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 and (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?

Net investment income is always less than gross investment income.

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

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

Capital loss carryovers for individuals are carried forward indefinitely.

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?

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 2020 Schedule D? What is the net long-term capital gain/loss reported on the 2020 Schedule D? What amount of capital gain is subject to the preferential capital gains rate?

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?