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Exam 7: Investments

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Question 31

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

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A dividend must be a qualified dividend ...

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Question 32

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Dave and Jane file a joint return. They sell a capital asset at a $150,000 loss. Even though they have no capital gains, $6,000 of the loss can still be deducted in the current year.

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Question 33

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

Investment expenses and investment interest expense are for AGI deductions.

A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.

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:

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

Which of the following types of interest income is not taxed as it is earned?

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.

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.

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

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:

Compare and contrast how interest income is reported for the following types of bonds: (a) bond originally issued at a discount, (b) bond originally issued at a premium, (c) bond purchased at a discount in a secondary market, (d) bond purchased at a premium in a secondary market.

How can electing to include long-term capital gains and qualifying dividends in the computation of net investment income be beneficial to taxpayers?

When calculating net investment income, gross investment income includes:

Judy, a single individual, reports the following items of income and loss: Judy owns 100% 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?

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?

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?

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?