Question 1

The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:
A) the bond proceeds.
B) the excess of the taxpayer's basis in the bonds over the bond proceeds.
C) the excess of the bond proceeds over the taxpayer's basis in the bonds.
D) the taxpayer's basis in the bonds.
E) None of the choices are correct.

Accepted Answer

The taxpayer recognizes interest income upon redemption of U.S. savings bonds based on the excess of the bond proceeds over their basis in the bonds. The basis in the bonds is typically the purchase price of the bond. Therefore, the interest income recognized is the difference between the redemption price and the purchase price.

Question 2

In X8, Erin had the following capital gains (losses) from the sale of her investments:$2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?
A) $3,000 net short-term capital gain.
B) $4,000 net long-term capital loss.
C) $4,000 net short-term capital gain.
D) $3,000 net long-term capital loss.
E) None of the choices are correct.

Accepted Answer

The net short-term capital gain is $25,000 - $15,000 = $10,000. The net long-term capital loss is $2,000 - $9,000 = $7,000. The overall net capital gain is $10,000 - $7,000 = $3,000.

Question 3

Which of the following is not a tax advantage of a Series EE Saving Bond?
A) interest is exempt from federal taxation when used for qualifying educational expenses
B) taxes are paid as the original issue discount on the bond is amortized
C) interest earned is exempt from state taxation
D) taxes are deferred until the bond is cashed in at maturity
E) None of the choices are correct.

Accepted Answer

This is not a tax advantage of Series EE Savings Bond. Rather, taxes are paid on the interest earned when the bond is redeemed or matures. The other options mentioned are tax advantages of Series EE Savings Bond.

Question 4

If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for more than one year, which gain will be taxed at the highest rate at the time of sale?
A) gain attributable to tax depreciation taken on real property
B) gain from investment land
C) gain from the sale of qualified small business stock held for 3 years
D) gain from personal-use property
E) gain from a coin collection

Accepted Answer

Gains from the sale of collectibles, such as a coin collection, are taxed at a maximum rate of 28%, which is higher than the long-term capital gains rate for other assets.

Question 5

Nontax factor(s) investors should consider when choosing between investments include:
A) before-tax rates of return and after-tax rates of return.
B) before-tax rates of return and liquidity needs.
C) liquidity needs.
D) before-tax rates of return.
E) after-tax rates of return.

Accepted Answer

The answer of Nontax factor(s) investors should consider when choosing...

Question 6

Long-term capital gains for individual taxpayers can be taxed at a maximum rate of:
A) 25 percent.
B) 20 percent.
C) 28 percent.
D) Both 20 percent and 28 percent.
E) All of the choices are correct.

Accepted Answer

The answer of Long-term capital gains for individual taxpayers can...

Question 7

Which of the following types of interest income is not taxed as it is earned?
A) original issue discounts on corporate bonds
B) accrued market discount on bonds
C) interest from savings accounts
D) interest from money market accounts
E) All of the choices are correct.

Accepted Answer

The answer of Which of the following types of interest...

Question 8

One primary difference between corporate and U.S. Treasury bonds is:
A) Interest from Treasury bonds is exempt from federal taxation.
B) Corporate bonds always pay interest periodically.
C) Treasury bonds always pay interest periodically.
D) Interest from corporate bonds is exempt from state taxation.
E) None of the choices are correct.

Accepted Answer

Treasury bonds always pay interest periodically, while with corporate bonds, it depends on the specific terms of the bond issuance. Option A is partially true, but it only applies to federal taxation, not all taxes. Option D is incorrect, as there is no exemption for state taxation on interest from corporate bonds. Option E is incorrect as well, as option C is a valid difference.

Question 9

When the wash sale rules apply, the realized loss is:
A) recognized at time of sale and added to basis of the newly acquired stock.
B) not recognized at time of sale and added to basis of the newly acquired stock.
C) not recognized at time of sale and does not affect basis of newly acquired stock.
D) recognized at time of sale.
E) not recognized at time of sale and subtracted from the basis of the newly acquired stock.

Accepted Answer

When the wash sale rules apply, the realized loss is not recognized at the time of sale and is added to the basis of the newly acquired stock. This means that the loss can still be used to offset future gains, but the investor must wait until they sell the newly acquired stock to realize the loss.

Question 10

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) accrued market discount.
B) market premium.
C) market discount.
D) accrued market premium.
E) None of the choices are correct.

Accepted Answer

When a bond is purchased in the secondary bond market at a discount, the difference between the purchase price and the face value of the bond is considered market discount. This market discount is treated as interest income when the bond is sold prior to maturity, and the amount of discount to be treated as interest income is referred to as accrued market discount.

Question 11

When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?
A) Specific identification
B) FIFO
C) LIFO
D) Weighted average
E) None of the choices are correct

Accepted Answer

Specific identification allows the seller to choose which specific shares to sell, allowing for the greatest opportunity to minimize gains or increase losses. This method allows the seller to choose shares with the highest basis (purchase price) to minimize gains or choose shares with the lowest basis to increase losses.

Question 12

John holds a taxable bond and a municipal bond. Which fees are considered part ofJohn's investment expense?
A) safe deposit box rental fees on taxable bond and interest expense on taxable bond
B) safe deposit box rental fees on taxable bond
C) interest expense on taxable bond
D) attorney and accounting fees on municipal bond and safe deposit box rental fees on taxable bond
E) attorney and accounting fees on municipal bond

Accepted Answer

Safe deposit box rental fees on a taxable bond are considered part of John's investment expenses.

Question 13

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?
A) $3,750
B) $7,000
C) $14,000
D) $7,500
E) None of the choices are correct

Accepted Answer

Cory's qualified small business stock is eligible for a 100% exclusion of the gain from income under Section 1202 of the Internal Revenue Code, as he held it for more than five years. Therefore, he owes no tax on the gain.

Question 14

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) long-term capital loss carryovers.
B) current year net loss in the 25 percent rate group and long-term capital loss carryovers.
C) current year net loss in the 25 percent rate group.
D) net short-term capital losses.
E) net short-term capital losses and long-term capital loss carryovers.

Accepted Answer

The answer of The netting process for capital gains (losses)...

Question 15

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 December12, 2017. The brokerage fee on the sale was $150. What is the amount of the gain/lossKevin must report on his 2017 tax return?
A) $5,000
B) $4,750
C) $4,500
D) $5,250
E) None of the choices are correct.

Accepted Answer

Kevin's gain is calculated as follows: (Selling price per share - Purchase price per share) * Number of shares - Total brokerage fees = ($75 - $50) * 200 - ($100 + $150) = $5,000 - $250 = $4,750.

Question 16

When calculating net investment income, gross investment income includes:
A) non-qualified dividends.
B) royalty income.
C) net short-term capital gains.
D) interest income.
E) All of the choices are correct.

Accepted Answer

Gross investment income includes all of the options listed (non-qualified dividends, royalty income, net short-term capital gains, and interest income). Therefore, the correct answer is E.

Question 17

Bill would like some tax benefits for his investment expenses incurred this year. His AGIis $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 forinvestment expenses this year before he receives any tax benefit?
A) More than $900.
B) More than $500.
C) More than $700.
D) Zero, Bill is already receiving a benefit.
E) None of the choices are correct.

Accepted Answer

Bill's AGI is $190,000, which means he is subject to a limit on the maximum amount of miscellaneous itemized deductions he can claim. This limit is 2% of his AGI, which in this case is $3,800.

Currently, Bill's total miscellaneous itemized deductions are $2,100 ($1,500 + $600), which is less than the $3,800 limit. However, in order for Bill to receive any tax benefit from his investment expenses, his total investment expenses must exceed the 2% limit of $3,800.

Therefore, Bill must spend more than $700 ($3,800 - $2,100) on investment expenses before he receives any tax benefits.

Question 18

In the current year, Norris, an individual, has $50,000 of ordinary income, a Net ShortTerm 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:
A) an offset against ordinary income of $10,000.
B) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200.
C) an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200.
D) an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200.
E) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000.

Accepted Answer

Norris can offset $3,000 of his NSTCL against his ordinary income, and the remaining $7,000 NSTCL is reduced by the $2,800 NLTCG, leaving a $4,200 NSTCL carryforward.

Question 19

Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2015.On December 31, 2017 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, 2018 for$3,000. What is Ms. Fresh's recognized loss on her 2017 sale and what is her basis in her1,000 shares purchased in 2018?
A) $300 LTCL and $3,200 basis.
B) $200 LTCL and $3,300 basis.
C) $500 LTCL and $3,000 basis.
D) $400 LTCL and $3,100 basis.
E) $-0- LTCL and $3,500 basis.

Accepted Answer

Ms. Fresh's loss on the 2017 sale is disallowed under the wash sale rule because she repurchased the same stock within 30 days. The disallowed loss of $500 is added to the basis of the new shares, making the basis $3,500.

Question 20

The maximum amount of net capital losses individual taxpayers may deduct against their ordinary income per year is:
A) There is no maximum. All losses are allowed to be deducted.
B) Zero, losses are not deductible.
C) $3,000.
D) $5,000.
E) None of the choices are correct.

Accepted Answer

The maximum amount of net capital losses individual taxpayers may deduct against their ordinary income per year is $3,000. This means that if an individual has a net capital loss of $4,000, only $3,000 of that loss can be used to offset ordinary income. The remaining $1,000 can be carried forward to future tax years.

Quiz 7: Investments

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

In X8, Erin had the following capital gains (losses) from the sale of her investments:$2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin's capital gains and losses?

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

If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for more than one year, which gain will be taxed at the highest rate at the time of sale?

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

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

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

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

When the wash sale rules apply, the realized loss 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:

When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses?

John holds a taxable bond and a municipal bond. Which fees are considered part ofJohn's investment expense?

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?

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:

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 December12, 2017. The brokerage fee on the sale was $150. What is the amount of the gain/lossKevin must report on his 2017 tax return?

When calculating net investment income, gross investment income includes:

In the current year, Norris, an individual, has $50,000 of ordinary income, a Net ShortTerm 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:

The maximum amount of net capital losses individual taxpayers may deduct against their ordinary income per year is: