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Exam 11: Investments

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Question 21

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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:

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

F) D) and E)
G) B) and D)

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Question 22

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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 23

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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.

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

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

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

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

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:

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

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

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.

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.

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?

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)

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?

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

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

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

What is the correct order of the loss limitation rules?