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Exam 16: Investment and Personal Financial Planning

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Question 21

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Mr Lee made the following transfers this year. Which of the transfers are treated as gifts for federal tax purposes?

A) Political contribution to the Democratic party
B) Charitable contribution to the United Way
C) Payment to a hospital for the medical expenses of his 39-year old son
D) None of the above are treated as gifts.

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Question 22

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Mr Ricardo exchanged 75 shares of Haslet common stock for 516 shares of Newland common stock pursuant to a reorganization of the two corporations. His basis in the Haslet stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?

A) Mr. Ricardo recognizes no gain and takes a $138,000 basis in the Newland stock.
B) Mr. Ricardo recognizes an $88,800 gain and takes a $138,000 basis in the Newland stock.
C) Mr. Ricardo recognizes no gain and takes a zero basis in the Newland stock.
D) Mr. Ricardo recognizes no gain and takes a $49,200 basis in the Newland stock.

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Question 23

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Mr and Mrs Perry own stock in an S corporation, which is their only passive activity. They have an $8,200 passive activity loss carryforward into this year. This year, the Perrys are allocated a $1,600 share of corporate ordinary business income. In December of this year, they recognize a $3,500 long-term capital gain on the sale of their entire stock interest. How much of their loss carryforward can the Perrys deduct this year?

In 2017, Mr Yang paid $160,000 for a corporate bond with a $200,000 stated redemption value. Based on the bond's yield to maturity, amortization of the $40,000 discount was $3,024 in 2017 and $2,960 in 2018. Mr Yang sold the bond for $169,500 in December 2018. What are his tax consequences in each year assuming that: a. He bought the newly issued bond from the corporation? b. He bought the bond in the public market through his broker?

Individual taxpayers are not allowed to deduct capital losses in excess of capital gains.

An inter vivos transfer is a gratuitous transfer of property by an individual that occurs at death.

At the beginning of the year, Calvin paid $5,000 for 60 shares of Eddington stock. In June, he received a $300 cash distribution with respect to the stock. His Form 1099-DIV reported that $170 was an ordinary dividend and $130 was nontaxable. Compute Calvin's tax basis in his 60 shares at year-end.

Beal recognized a $42,400 net long-term capital gain and a $33,000 net short-term capital loss this year. What is her current net income tax cost from her capital transactions if her marginal rate on ordinary income is 37%?

This year, Ms. Kwan recognized a $16,900 net long-term capital loss. Which of the following statements is true?

Investment interest expense is an above-the-line deduction.

Which of the following statements about an investment in undeveloped land is false?

The tax consequences of a business activity are generally the same as the tax consequences of an investment activity.

Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items. Salary $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 113,700 Business income from MKP $\quad$$\quad$$\quad$$\quad$ $ 42,000 Business loss from Reynolds $\quad$$\quad$$\quad$$\quad$ $ (28,000 ) If Ms. Watts materially participates in the business of both corporations, compute her AGI.

Sixteen years ago, Ms. Herbert purchased an annuity for $96,000. Beginning in September of this year, the annuity began paying Ms. Herbert $4,000 per month for the rest of her life. Based on her age, Ms. Herbert's expected return is $300,000. How much of the $16,000 that she received this year is included in taxable income?

Mr and Mrs Holt made no taxable gifts during their lifetimes. Mrs Holt died two years ago. Her estate tax return shows that she owed no estate tax and had an $800,000 unused lifetime exclusion. Mr Hold died in 2018. The lifetime transfer tax exclusion available to his estate is $12 million.

Which of the following are included in a decedent's taxable estate?

Frederick Tims, a single individual, sold the following investment assets this year. If Frederick's preferential tax rate on adjusted capital gain is 15%, compute his tax attributable to the above sales.

An owner of a life insurance policy that includes an investment element must recognize income equal to the annual increase in the policy's cash surrender value.

Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire taxable bonds. Her AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she deduct?

The tax rate on capital gains is determined solely by reference to the capital asset's holding period.