Question 1

Two advantages of investing in capital assets are (1)gains are generally deferred and (2)gains are generally taxed at preferential rates.

Accepted Answer

A) True 
 B)False

Question 2

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 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 $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)  $0; 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) C) and D)
G) C) and E)

Question 3

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

Accepted Answer

A)  Interest from savings accounts.
B)  Original issue discounts on corporate bonds.
C)  Accrued market discount on bonds.
D)  Interest from money market accounts.
E)  All of the choices are correct.F) B) and E)
G) A) and D)

Question 4

Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2017. On December 31, 2019, 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, 2020, for $3,000. What is Ms. Fresh's recognized loss on her 2019 sale, and what is her basis in her 1,000 shares purchased in 2020?

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

Question 5

A passive activity is any activity that involves a trade or business in which the taxpayer does not materially participate or any rental activity (unless the taxpayer is engaged in a real property trade or business).

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  before-tax rates of return.
B)  after-tax rates of return.
C)  liquidity needs.
D)  before-tax rates of return and after-tax rates of return.
E)  before-tax rates of return and liquidity needs.F) A) and B)
G) B) and E)

Question 7

Investment interest expense is a for AGI deduction.

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

John holds a taxable bond and a municipal bond. Which are considered part of John's deductible investment interest expense?

Accepted Answer

A)  Attorney and accounting fees on municipal bond.
B)  Safe deposit box rental fees on taxable bond.
C)  Interest expense on taxable bond.
D)  Interest expense on municipal bond.
E)  Interest expense on municipal bond and interest expense on taxable bond.F) A) and D)
G) B) and D)

Question 10

Investment income includes:

Accepted Answer

A)  interest income.
B)  net short-term capital gains.
C)  nonqualified dividends.
D)  royalty income.
E)  All of the choices are correct.F) A) and B)
G) A) and C)

Question 11

Qualified dividends are always taxed at a 15 percent preferential rate.

Accepted Answer

A) True 
 B)False

Question 12

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) B) and C)
G) A) and B)

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

When electing to include preferentially taxed capital gains and qualified dividends in net investment income, taxpayers must include all preferentially taxed capital gains and qualified dividends recognized for that year.

Accepted Answer

A) True 
 B)False

Exam 7: Investments

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.

Correct Answer
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Investment income includes:

Correct Answer
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John holds a taxable bond and a municipal bond. Which are considered part of John's deductible investment interest expense?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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Nontax factor(s) investors should consider when choosing among investments include:

Correct Answer
verified

When electing to include preferentially taxed capital gains and qualified dividends in net investment income, taxpayers must include all preferentially taxed capital gains and qualified dividends recognized for that year.

Correct Answer
verified

Qualified dividends are always taxed at a 15 percent preferential rate.

Correct Answer
verified

A passive activity is any activity that involves a trade or business in which the taxpayer does not materially participate or any rental activity (unless the taxpayer is engaged in a real property trade or business).

Correct Answer
verified

Correct Answer
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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

Two advantages of investing in capital assets are (1)gains are generally deferred and (2)gains are generally taxed at preferential rates.

Correct Answer
verified

Investment interest expense is a for AGI deduction.

Correct Answer
verified

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

Correct Answer
verified

Exam 7: Investments

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.

Correct AnswerverifiedShow Answer

Investment income includes:

Correct AnswerverifiedShow Answer

John holds a taxable bond and a municipal bond. Which are considered part of John's deductible investment interest expense?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When electing to include preferentially taxed capital gains and qualified dividends in net investment income, taxpayers must include all preferentially taxed capital gains and qualified dividends recognized for that year.

Correct AnswerverifiedShow Answer

Qualified dividends are always taxed at a 15 percent preferential rate.

Correct AnswerverifiedShow Answer

A passive activity is any activity that involves a trade or business in which the taxpayer does not materially participate or any rental activity (unless the taxpayer is engaged in a real property trade or business).

Correct AnswerverifiedShow Answer

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

Two advantages of investing in capital assets are (1)gains are generally deferred and (2)gains are generally taxed at preferential rates.

Correct AnswerverifiedShow Answer

Investment interest expense is a for AGI deduction.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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