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Exam 7: Investments

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Question 41

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

A) True
B) False

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Question 42

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

A) taxpayer materially participated in the activity for any five of the preceding ten years
B) taxpayer participated on a regular, continuous, and substantial basis last year
C) taxpayer participated 95 hours last year and participation is not less than any other participants for the year
D) taxpayer participated in the activity for 995 hours last year
E) none of these

F) C) and D)
G) A) and B)

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Question 43

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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.

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?

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

Alain Mire files a single tax return and has adjusted gross income of $304,000. His net investment income is $53,000. What is the additional tax that Alain will pay on his net investment income for the year?

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

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

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

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

Mr. and Mrs. Smith purchased 100 shares of stock for $45 per share on June 30, 20X6. On March 30, 20X8, the Smith family decides to sell these shares for $30 generating a loss of $15 per share. On April 15, 20X8, the Smith family realized they made a mistake and repurchased 100 shares for $35 per share. When will the Smith family receive a tax benefit for the loss on the March 30, 20X8 sale?

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

Describe the three main loss limitations that taxpayers must overcome before deducting losses allocated to them from a specific activity.

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): If his goal is to minimize his current capital gain, how much capital gain will George report from the sale?

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?

Bill would like some tax benefits for his investment expenses incurred this year. His AGI is $190,000. Currently, his expenses consist of: (1) $1,000 investment advice fees, (2) $1,500 unreimbursed employee business expenses (a miscellaneous itemized deduction) , and (3) $600 tax return preparation fees. How much more, if any, must Bill spend for investment expenses this year before he receives any tax benefit?