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Exam 11: Investments

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Question 51

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Compare and contrast the advantages and disadvantages of Coverdell Educational Savings Plans and 529 Plans.

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Coverdell Educational Savings Plan Advan...

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Question 52

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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:

A) an offset against ordinary income of $10,000
B) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000
C) an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200
D) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200
E) an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200

F) B) and C)
G) B) and D)

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Question 53

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What is the tax treatment for qualified small business stock acquired in 2014 and held for more than five years and what is the tax treatment if held for less than five years?

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 she 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?

On December 1, 20X7, George Jimenez needed a little extra cash for the upcoming holiday season, and sold 250 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): $\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Acquisition } \\\text { Date }\end{array} & \begin{array} { c } \text { Number of } \\\text { Shares }\end{array} & \begin{array} { c } \text { Market Price When } \\\text { Acquired }\end{array} & \begin{array} { c } \text { Broker's } \\\text { Fee }\end{array} \\\hline \text { 1/1/X4 } & 300 & \$ 35 \text { per share } & \$ 250 \\\hline 6 / 30 / \mathbf { X 6 } & 300 & \$ 45 \text { per share } & \$ 250 \\\hline\end{array}$ If his goal is to minimize his current capital gain, how much capital gain will George report from the sale?

Investment interest expense does not include:

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?

Investment expenses treated as miscellaneous itemized deductions do not include:

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

Unrecaptured §1250 gain is taxed at the 28 percent preferential capital gains rate.

If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return, what investment time period will give Jim the greatest after-tax return?

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

When 529 plan distributions are not used for qualified higher education expenses, these distributions are subject to an additional penalty of:

Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

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 net investment income this year is greater than her investment interest expense this year, how much investment interest expense can she deduct in 20X8?

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

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?

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

Which of the following portfolio investments is incorrectly characterized (Investment - Income Type - Timing of Taxation - Tax Rate) ?

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.