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Exam 7: Investments

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Question 41

Multiple Choice

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Unused investment interest expense:

A) expires after the current year.
B) is carried back two years.
C) is carried forward 20 years.
D) is carried forward indefinitely.
E) None of the choices are correct.

F) B) and E)
G) A) and B)

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Question 42

Multiple Choice

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

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

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Question 43

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Kerri, a single taxpayer who itemizes deductions on Schedule A, incurs $15,000 of interest expense on funds borrowed to acquire taxable bonds. Kerri also has $20,000 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 $20,000 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?

Sue invested $7,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $24,000 of qualified nonrecourse debt and $24,000 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 $11,800 and an at-risk amount of $9,400. During the year, ABC LP generated a ($118,000) loss. How much of Sue's loss is disallowed due to her tax basis or at-risk amount?

What requirements must be satisfied before an investor may receive preferential tax treatment on dividend income, and what preferential treatment will result?

In the current year, Norris, an individual, has $70,000 of ordinary income, a net short-term capital loss (NSTCL) of $8,000 and a net long-term capital gain (NLTCG) of $4,800. From his capital gains and losses, Norris reports:

On December 1, 20X7, George Jimenez needed a little extra cash for the upcoming holiday season, and sold 250 shares of Microsoft stock for $57 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). (Round your intermediate calculations to 2 decimal places) If his goal is to minimize his current capital gain, how much capital gain will George report from the sale?

Judy, a single individual, reports the following items of income and loss: Judy owns 100 percent of the rental property and actively participates in the rental of the property. Calculate Judy's AGI.

On January 1, 20X1, Fred purchased a corporate bond with a face value of $24,000 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.)

What are the rules limiting the amount of capital losses a taxpayer may deduct in a given year? Name at least three.

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.

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). (Do not round intermediate calculations.) If his goal is to minimize his current capital gain, how much capital gain will George report from the sale?

Judy, a single individual, reports the following items of income and loss: Judy owns 100percent of the rental property and actively participates in the rental of the property. Calculate Judy's AGI.

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

How are individual taxpayers' investment expenses and investment interest expense treated for tax purposes?

Generally, losses from rental activities are considered to be active losses.

Investment expenses (other than investment interest expenses)are deductible.

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?

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,500 LTCG, $24,500 STCG, ($9,500) LTCL, and ($15,500) STCL. What is the amount and nature of Erin's capital gains and losses?

Cory recently sold his qualified small business stock for $90,000 after holding it for 10 years. His basis in the stock is $40,000. Applying the rules as if the stock were acquired in 2020 and assuming his marginal tax rate is 32 percent, how much tax will he owe on the sale?