Question 1

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 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?

Accepted Answer

Elect to include only $2,983 of long-ter...

Question 2

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?

Accepted Answer

A)   $3,000 net short-term capital gain.
B)   $3,000 net long-term capital loss.
C)   $4,000 net short-term capital gain.
D)   $4,000 net long-term capital loss.
E)   None of the choices are correct.F) None of the above
G) A) and E) A

Question 3

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

Accepted Answer

A)   rental real estate − passive income/loss
B)   salary − active income/loss
C)   dividends − portfolio income/loss
D)   capital losses − passive income/loss
E)   All of the choices are correct.F) All of the above
G) C) and E)

Question 4

Investment expenses and investment interest expense are for AGI deductions.

Accepted Answer

A) True 
 B)False

Question 5

The rental real estate exception favors:

Accepted Answer

A)   lower income taxpayers (AGI less than $80,000) .
B)   middle income taxpayers (AGI greater than $80,000 and less than $150,000) .
C)   upper income taxpayers (AGI greater than $150,000) .
D)   lower income taxpayers (AGI less than $80,000)  and middle income taxpayers (AGI greater than $80,000 and less than $150,000) .
E)   middle income taxpayers (AGI greater than $80,000 and less than $150,000)  and upper income taxpayers (AGI greater than $150,000) .F) B) and E)
G) A) and B)

Question 6

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

Accepted Answer

A)   a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying.
B)   cash contributions to the activity.
C)   cash distributions from the activity.
D)   a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying and cash contributions to the activity.
E)   a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying and cash distributions from the activity.F) C) and D)
G) B) and E)

Question 7

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Accepted Answer

A) True 
 B)False

Question 8

Henry,a single taxpayer with a marginal tax rate of 35 percent,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?

Accepted Answer

A $2,000 long-term capital gain taxed at 28%,$25,000 long-term capital gains taxed at 25% and $50,000 long-term capital gain taxed at 15%.
See computations below:
Step 1: ($3,000)net short-term capital loss [$3,000 + ($6,000)].
Step 2: The $25,000 gain on the ABC stock,and $25,000 of gain from the rental home are placed in the 0/15/20 percent group resulting in $50,000 of 0/15/20 percent gains.$25,000 of the gain from the rental property is placed in the 25 percent group,and the $5,000 gain on the stamp collection is placed in the 28 percent group.
Step 3: (B)Proceed to step 6.
Step 4: Not required.
Step 5: Not required.
Step 6: Move the ($3,000)loss from Step 1 into the 28 percent group to offset the $5,000 gain from the stamp collection.This step leaves $2,000 to be taxed at a maximum of 28 percent,$25,000 taxed at a maximum of 25 percent,and $50,000 taxed at 15 percent because Henry's marginal tax rate is 35 percent.
Step 7: Not required.

Question 9

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 this income to ordinary tax rates.

Accepted Answer

A) True 
 B)False

Question 10

When calculating net investment income,gross investment income includes:

Accepted Answer

A)   interest income.
B)   net short-term capital gains.
C)   non-qualified dividends.
D)   royalty income.
E)   All of the choices are correct.F) B) and D)
G) None of the above

Question 11

Doug and Sue Click file a joint tax return and decide to itemize their deductions.The Click's income for the year consists of $90,000 in salary,$2,000 interest income,$800 long-term capital loss.The Click's expenses for the year consist of $1,500 investment interest expense.Assuming that the Click's marginal tax rate is 35%,what is the amount of their investment interest expense deduction for the year?

Accepted Answer

A)   $1,200
B)   $1,500
C)   $2,000
D)   $2,300
E)   None of the choices are correct.F) A) and B)
G) A) and C)

Question 12

Ms.Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15,2015.On December 31,2017 she sold all 1,000 shares of her Ibis stock for $4,500.Based on a hot tip from her friend,she bought 1,000 shares of Ibis stock on January 23,2018 for $3,000.What is Ms.Fresh's recognized loss on her 2017 sale and what is her basis in her 1,000 shares purchased in 2018?

Accepted Answer

A)   $-0- LTCL and $3,500 basis.
B)   $200 LTCL and $3,300 basis.
C)   $300 LTCL and $3,200 basis.
D)   $400 LTCL and $3,100 basis.
E)   $500 LTCL and $3,000 basis.F) B) and D)
G) A) and E)

Question 13

What is the tax treatment for qualified small business stock acquired in 2017 and held for more than five years and what is the tax treatment if held for less than five years?

Accepted Answer

Qualified business stock is considered a...

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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:

Accepted Answer

A)   current year net loss in the 25 percent rate group.
B)   net short-term capital losses.
C)   long-term capital loss carryovers.
D)   current year net loss in the 25 percent rate group and long-term capital loss carryovers.
E)   net short-term capital losses and long-term capital loss carryovers.F) C) and E)
G) C) and D)

Question 16

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:

Accepted Answer

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) C) and D)
G) A) and E) E

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 a taxpayer may be treated as an active participant in an activity.

Accepted Answer

To be considered an active participant i...

Question 19

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?

Accepted Answer

A)   Zero; all of her loss is allowed to be deducted.
B)   $2,000 disallowed because of her at-risk amount.
C)   $2,000 disallowed because of her tax basis.
D)   $4,000 disallowed because of her tax basis.
E)   $4,000 disallowed because of her at-risk amount.F) A) and E)
G) B) and D)

Question 20

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 $25,000 loss,which was split equally among Roy and his three friends.Assuming Roy's only source of income was $145,000 of salary,how much of the rental loss can Roy deduct this year and what amount must be carried forward?

Accepted Answer

Current year deduction − $2,500 and carr...

Exam 7: Investments

Correct Answer
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Elect to include only $2,983 of long-ter...
View Answer

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?

Correct Answer
verified
A

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

Correct Answer
verified

Investment expenses and investment interest expense are for AGI deductions.

Correct Answer
verified

The rental real estate exception favors:

Correct Answer
verified

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

Correct Answer
verified

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Correct Answer
verified

Henry,a single taxpayer with a marginal tax rate of 35 percent,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?

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 this income to ordinary tax rates.

Correct Answer
verified

When calculating net investment income,gross investment income includes:

Correct Answer
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Correct Answer
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Correct Answer
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What is the tax treatment for qualified small business stock acquired in 2017 and held for more than five years and what is the tax treatment if held for less than five years?

Correct Answer
verified
Qualified business stock is considered a...
View Answer

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

Correct Answer
verified

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:

Correct Answer
verified

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:

Correct Answer
verified
E

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

Correct Answer
verified

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 a taxpayer may be treated as an active participant in an activity.

Correct Answer
verified
To be considered an active participant i...
View Answer

Correct Answer
verified

Correct Answer
verified
Current year deduction − $2,500 and carr...
View Answer

Exam 7: Investments

Correct AnswerverifiedElect to include only $2,983 of long-ter...View AnswerShow Answer

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?

Correct AnswerverifiedA

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

Correct AnswerverifiedShow Answer

Investment expenses and investment interest expense are for AGI deductions.

Correct AnswerverifiedShow Answer

The rental real estate exception favors:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Correct AnswerverifiedShow Answer

Henry,a single taxpayer with a marginal tax rate of 35 percent,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?

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 this income to ordinary tax rates.

Correct AnswerverifiedShow Answer

When calculating net investment income,gross investment income includes:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the tax treatment for qualified small business stock acquired in 2017 and held for more than five years and what is the tax treatment if held for less than five years?

Correct AnswerverifiedQualified business stock is considered a...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedE

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

Correct AnswerverifiedShow Answer

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 a taxpayer may be treated as an active participant in an activity.

Correct AnswerverifiedTo be considered an active participant i...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedCurrent year deduction − $2,500 and carr...View AnswerShow Answer

Correct Answer
verified
Elect to include only $2,983 of long-ter...
View Answer

Correct Answer
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A

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Correct Answer
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Qualified business stock is considered a...
View Answer

Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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To be considered an active participant i...
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Correct Answer
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Correct Answer
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Current year deduction − $2,500 and carr...
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