Question 1

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

Accepted Answer

The answer of Long-term capital gains can be taxed at...

Question 2

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 as any activity in which the taxpayer does not materially participate, whether it involves a trade or business or rental activity. Material participation is defined as involvement in the operations of the activity on a regular, continuous, and substantial basis. Passive activities may still generate income or losses, but the taxpayer's involvement is limited, and they may be subject to different tax rules and requirements.

Question 3

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

Accepted Answer

The answer of Which of the following is not a...

Question 4

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:

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 called the market discount. This market discount is treated as interest income when the bond is sold prior to maturity, and the amount of this interest income is equivalent to the accrued market discount. Therefore, the correct answer is D, accrued market discount.

Question 5

If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return,what investment time period will give Jim the greatest after-tax return?

Accepted Answer

The after-tax return of a dividend-paying stock with a fixed annual return rate does not depend on the investment time period, assuming the tax rate and return rate remain constant over time.

Question 6

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 7

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.

Question 8

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

Accepted Answer

The specific identification method allows investors to choose which shares to sell, potentially minimizing gains or increasing losses depending on which shares they select. With FIFO, LIFO, and weighted average methods, investors must sell shares in a specific order and may not have as much control over the specific gains or losses realized.

Question 9

What rate should be used when calculating the after-tax future value of investments with a constant rate of return that is taxed annually?

Accepted Answer

When calculating the after-tax future value of investments with a constant rate of return that is taxed annually, the most appropriate rate to use is the annual after-tax rate of return. This takes into account the effects of taxes on the investment returns and provides a more realistic estimation of the investment's value in the future.

Question 10

If Adam invested $25,000 in a stock paying annual dividends equal to 5% of his investment,what would the value of his investment be 10 years from now assuming that he reinvested his after-tax dividends each year? Assume Adam's marginal ordinary tax rate is 15%.

Accepted Answer

The answer of If Adam invested $25,000 in a stock...

Question 11

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?

Accepted Answer

The answer of In X8,Erin had the following capital gains...

Question 12

If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return,how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.

Accepted Answer

The answer of If Tom invests $60,000 in a taxable...

Question 13

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

Accepted Answer

The amount of interest income a taxpayer recognizes when redeeming a U.S. savings bond is the excess of the bond proceeds over the taxpayer's basis in the bonds. The basis is the amount paid for the bond (face value) and the accrued interest. Therefore, the interest income recognized upon redemption is the difference between the bond's value at redemption and the taxpayer's basis in the bond.

Question 14

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

Accepted Answer

This is known as the passive activity loss (PAL) rule in the tax code. Any passive losses that cannot be used in the current tax year can be carried forward to future tax years until there is enough passive income to offset the losses.

Question 15

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 16

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

Accepted Answer

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

Question 17

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

Accepted Answer

This is true according to the tax code. The investment interest expense deduction cannot exceed the amount of net investment income for the year. If the deduction exceeds the net investment income, the excess can be carried forward to future years.

Question 18

Cory recently sold his qualified small business stock (acquired in 2013) 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?

Accepted Answer

Cory can exclude 100% of the gain from the sale of qualified small business stock held for more than five years, so he owes no tax on the gain.

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

The answer of One primary difference between corporate and U.S.Treasury...

Quiz 11: Investments