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Exam 7: Investments

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Question 21

Multiple Choice

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Bob Brain files a single tax return and decides to itemize his deductions.Bob's income for the year consists of $75,000 of salary,$3,000 long-term capital gain,and $1,500 interest income.Bob's expenses for the year consists of $800 investment advice fees,$700 unreimbursed employee business expenses (a miscellaneous itemized deduction) ,and $250 tax return preparation fees.What is Bob's actual deduction for miscellaneous itemized deductions?

A) Zero; Bob's investment expenses do not exceed two percent of AGI floor.
B) $1,590.
C) $1,500.
D) $1,750.
E) None of the choices are correct.

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

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Question 22

True/False

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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

Multiple Choice

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Nontax factor(s) investors should consider when choosing between investments include:

Michelle is an active participant in the rental condominium property she owns.During the year,the property generates a ($15,000) loss; however,Michelle has sufficient tax basis and at-risk amounts to absorb the loss.If Michelle has $115,000 of salary,$10,000 of long-term capital gains,$3,000 of dividends,and no additional sources of income or deductions,how much loss can Michelle deduct?

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

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

Which of the following is not a tax advantage of a Series EE Saving Bond?

Cory recently sold his qualified small business stock (acquired in 2017) for $90,000 after holding it for ten years.His basis in the stock is $40,000.Assuming his marginal tax rate is 35 percent,how much tax will he owe on the sale?

Kevin bought 200 shares of Intel stock on January 1,2017 for $50 per share with a brokerage fee of $100.Then,Kevin sells all 200 shares for $75 per share on December 12,2017.The brokerage fee on the sale was $150.What is the amount of the gain/loss Kevin must report on his 2017 tax return?

One primary difference between corporate and U.S.Treasury bonds is:

The amount of interest income a taxpayer recognizes when he redeems a U.S.savings bond is:

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:

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

Which taxpayer would not be considered a material participant of an activity?

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

Dan and Sue Hill file a joint tax return and elect to itemize their deductions.For 20X7,the Hills received the following income items: (1)$150,000 salary,(2)$3,000 long-term capital gain,and (3)$1,500 interest income.Other than these amounts,no other events or transactions affected their AGI in 20X7.During the same year,the Hills incurred the following expenses: (1)$500 tax preparation fees,(2)$4,000 investment expenses,and (3)$10,000 additional miscellaneous expenses.Assuming the Hills have a marginal tax rate of 30 percent,what is the tax benefit they receive from the investment expenses they paid?

Losses associated with personal-use assets,sales to related parties,and wash sales are not currently deductible.

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

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): $\begin{array} { l c c c } \text { Acquisition Date } & \text { Nurber of Bhares } & \text { Market Prce Wher Acquired } & \text { Broker's Fee } \\1 / 1 \times 4 & 300 & \$ 35 \text { per share } & \$ 250 \\\text { s/30/X6 } & 300 & \$ 45 \text { per share } & \$ 250\end{array}$ If his goal is to minimize his current capital gain,how much capital gain will George report from the sale?

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