Question 1

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

Accepted Answer

Qualified dividends are taxed at the capital gains tax rate, which can be 0%, 15%, or 20% depending on the taxpayer's taxable income and filing status.

Question 2

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

Accepted Answer

A loss from a passive activity is generally not fully deductible due to passive activity loss rules, which limit the deduction to the amount of income generated from passive activities, regardless of the taxpayer's tax basis in the activity.

Question 3

Losses associated with personal-use assets, sales to related parties, and wash sales are notcurrently deductible.

Accepted Answer

Losses from personal-use assets, sales to related parties, and wash sales are specifically disallowed from being deductible according to current tax laws.

Question 4

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capitalgains requires them to (1) net short-term and long-term gains, (2) net short-term andlong-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

Accepted Answer

Taxpayers must first net their short-term gains and losses to determine a net short-term gain or loss. Then, they separately net their long-term gains and losses to determine a net long-term gain or loss. Finally, they net the short-term and long-term results against each other to determine the overall net capital gain or loss to report on their tax return.

Question 5

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

Accepted Answer

A passive activity is defined by the IRS as one in which the taxpayer does not materially participate. This typically includes activities like rental properties or limited partnerships where the taxpayer is not actively involved in the day-to-day operations of the business.

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

The answer of Unrecaptured §1250 gain is taxed at the...

Question 8

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

The passive activity rental real estate exception does not specify that the taxpayer must own at least 15 percent of the property. The key criteria are active participation and a specific level of material participation in the property's management, not a specific ownership percentage.

Question 9

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

Accepted Answer

Interest earned on U.S. savings bonds is not taxed annually, but rather at the time of redemption or maturity.

Question 10

When electing to include long-term capital gains and qualified dividends in netinvestment income, taxpayers must include all long-term capital gains and dividends recognized for that year.

Accepted Answer

The answer of When electing to include long-term capital gains...

Question 11

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

Accepted Answer

Gains from investments in capital assets, such as stocks, real estate, and businesses, are generally taxed at lower rates than ordinary income. Additionally, if the asset is held for more than one year, the gain is considered a long-term capital gain and is taxed at even lower rates. These lower tax rates provide a tax incentive for investors to hold onto their capital assets for the long-term. Additionally, gains from capital assets are not realized until the asset is sold, which allows for tax-deferred growth.

Question 12

Capital loss carryovers for individuals are carried forward indefinitely.

Accepted Answer

According to the IRS, capital loss carryovers for individuals can be carried forward indefinitely to future tax years.

Question 13

When a taxable bond is issued at a premium, the taxpayer may elect to calculate andapply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

Accepted Answer

This is true. When a bond is issued at a premium, the interest payments are higher than the bond's stated interest rate. To adjust for this, the taxpayer may elect to amortize the premium over the life of the bond and reduce a portion of the actual interest payments that they include in their gross income.

Question 14

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

Accepted Answer

The investment interest expense deduction is limited to the amount of net investment income for the year. This means that if your investment interest expense exceeds your net investment income, you cannot deduct the excess amount in the current year but can carry it forward to future years.

Question 15

Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses or until the taxpayer disposes of that activity.

Accepted Answer

This is the general rule for passive losses according to the tax code. However, there are some exceptions and limitations to consider. It is always suggested to consult a tax professional for specific guidance on individual tax situations.

Question 16

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

Accepted Answer

The answer of Dave and Jane file a joint return....

Question 17

Investment expenses and investment interest expense are for AGI deductions.

Accepted Answer

The answer of Investment expenses and investment interest expense are...

Question 18

Nondeductible investment expenses (other than investment interest expenses) are carried forward indefinitely.

Accepted Answer

The answer of Nondeductible investment expenses (other than investment interest...

Question 19

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.

Accepted Answer

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.

Question 20

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

Accepted Answer

Losses from rental activities are generally considered to be passive losses, not active, because they typically do not involve the level of continuous, regular, and substantial involvement that active businesses do.

Quiz 7: Investments

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

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

Losses associated with personal-use assets, sales to related parties, and wash sales are notcurrently deductible.

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capitalgains requires them to (1) net short-term and long-term gains, (2) net short-term andlong-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

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

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

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

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.

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

When electing to include long-term capital gains and qualified dividends in netinvestment income, taxpayers must include all long-term capital gains and dividends recognized for that year.

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

Capital loss carryovers for individuals are carried forward indefinitely.

When a taxable bond is issued at a premium, the taxpayer may elect to calculate andapply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.

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

Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses or until the taxpayer disposes of that activity.

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

Investment expenses and investment interest expense are for AGI deductions.

Nondeductible investment expenses (other than investment interest expenses) are carried forward indefinitely.

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.

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