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Please choose the statement that is INCORRECT regarding portfolio and passive investments?
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Which of the following types of investments generate interest income? (Check all that apply.)
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Midterm Two Tax
Chapter 7, Chapter 9
| Question | Answer |
|---|---|
| Please choose the statement that is INCORRECT regarding portfolio and passive investments? | Losses from portfolio investments are deductible in full against ordinary income. |
| Which of the following types of investments generate interest income? (Check all that apply.) | Government bonds Corporate bonds Savings accounts Certificates of deposit |
| Which of the following statements is correct? | Interest income is typically taxed at ordinary rates. |
| Regarding portfolio investments, which types of income generally are taxed at a rate lower than the taxpayer's marginal tax rate? (Check all that apply.) | Long-term capital gains Qualified dividends |
| Brent, a single taxpayer, has a 24% marginal tax rate. He is considering an investment that will earn qualified dividends at a rate of 7% before tax. What is Brent's after-tax rate of return on the securities? | 5.95% |
| Which of the following types of income is generated from passive investments rather than portfolio investments? | Operating Income |
| Which of the following types of investments generate dividend income? (Check all that apply.) | Corporate Stock Mutual Fund Investments |
| Qi, Julian, and Omar are in the 24% tax bracket. Qi received $3,000 in corporate bond interest, Omar $2,500 in savings account interest, and Julian $2,500 in dividends from a US corporation. Rank the taxpayers by their tax liability from from least to gre | 1. Julian's $2,500 2. Omar's $2,500 3. Qi's $3,000 |
| Which of the following choices describes the tax treatment for qualified dividends? (Check all that apply.) | The income may be taxed as low as 0%, depending on the taxpayer's ordinary income rate. The income may be taxed at a rate as high as 20%, depending on the taxpayer's taxable income. |
| Bailey has $8,000 to invest. She has a 24% marginal tax rate and is planning to reinvest her dividends and leave the investment in place for three years. If she can invest the money in taxable securities that earn qualified dividends with a 6% rate of ret | $9,287 |
| True or false: Income from passive investments may be taxed at ordinary rates, preferential rates, or may be exempt from taxation while income from portfolio investments will be taxed at ordinary rates. | False |
| True or false: Interest income is generally taxed at lower capital gains rates. | False |
| Regarding portfolio investments, _____ dividends generally are taxed at capital gains rates and _____ dividends are taxed at ordinary rates. | qualified non-qualified |
| How is a capital asset's tax basis calculated? (Check all that apply.) | The tax basis includes costs to substantially improve the asset. The tax basis includes the original cost (or other basis) in the asset. The tax basis includes costs incurred in preparing the asset for initial use. |
| A taxpayer may use the specific identification method for determining the tax basis of stock being sold rather than the FIFO method when the taxpayer Blank______. | has maintained sufficient records to document which batch of stock is being sold |
| Which one of the following tax rates does NOT currently apply to long-term capital gains? | 37% |
| Assets that are held for investment or personal use assets are referred to as __________ assets. (Enter only one word per blank.) | Capital |
| What type of gain is taxed at a maximum long-term capital gains rate of 25%? | Unrecaptured Section 1250 gain from the sale of business property |
| Assets such as works of art, antiques, stamps and coins held for more than one year are referred to as _________. The maximum capital gains tax rate applied to the gain on the sale of these assets is _______ percent | collectibles 28% |
| Holly has worked for Ford Motor Company for several years. Each year, she purchases 50 - 100 shares of the company's stock for her investment portfolio. During the current year, Holly sold 25% of her stock to purchase a new home. She has not maintained re | First-in, first-out method |
| True or false: Short-term capital gains are subject to preferential tax treatment when the capital gains rates are lower than the taxpayer's marginal income tax rate | False |
| Bridget, a single taxpayer, sold a building used in her business during the current year. The realized gain on the sale was $135,000. Of this amount, $95,000 is unrecaptured Section 1250 gain. How will Bridget be taxed on this gain assuming her marginal t | $95,000 will be taxed at 25 percent and $40,000 will be taxed at 15%. |
| What is included in the calculation of the amount realized upon the sale of a capital asset? (Check all that apply.) | Broker's fees and other selling costs are deducted Fair market value of any other property received by the seller Cash received by the seller |
| Which of the following choices describe collectibles? (Check all that apply.) | Alcoholic beverages held over a year can qualify as a collectible. Coin collections and stamp collections may qualify as collectibles. A gain on collectibles is taxed at a maximum rate of 28 percent. |
| Section 1202 provides that owners of qualified small business stock that is sold during 2022 and has been held for at least five years can exclude up to _______ percent of the gain from taxation depending on the acquisition date. | 100 |
| Bob has capital losses of $4,000 that exceed his capital gains in the current year. Of this amount, $1,200 is a short-term capital loss and $2,800 is a long-term capital loss. The capital loss carryforward will be a $1,000 Blank______. | long-term capital loss because Bob must first use the short-term loss to offset ordinary income |
| Chad incurred capital gains and losses during the current year. He has a $7,000 net short-term capital gain; a $14,000 long-term capital loss in the 15% category; and a $10,000 long-term capital gain taxed at 28%. How will these transactions be taxed afte | $3,000 will be taxed at marginal rates. |
| Which of the following statements is CORRECT regarding the sale of qualified small business stock (Sec. 1202 stock)? | Up to 100% of the gain could be excluded depending on the acquisition date. |
| Taxpayers can completely offset _________ __________ with capital losses. If an excess capital loss remains, married filing jointly taxpayers can deduct up to $ __________ per year against ordinary income. The loss exceeding that amount is carried forward | capital gains 3,000 |
| Taxpayers must ____________ (include/exclude) gains but __________ (include/exclude) losses on the disposal of personal use assets from gross income. | include exclude |
| When an investor sells or trades stock or securities at a loss and within 30 days either before or after the day of sale buys substantially identical stocks or securities a(n) ________ __________ occurs. (Enter only one word per blank.) | wash sale |
| Which of the following characteristics of a wash sale are CORRECT? | The loss generated by a wash sale is NOT deductible. The unrecognized loss is added to the basis of the newly acquired stock. |
| If a taxpayer has a long-term capital loss in the 15% category, how is it used to offset capital gains in the other rate categories? | The loss will first offset gains in the 28% category, then the 25% category; then the taxpayer may use it to offset short-term capital gains. |
| Which of the following types of transactions results in capital losses that are deductible for tax purposes? | Sales of investment assets |
| What term is used to denote the interest incurred on loans used to acquire investments? | Investment Interest Expense |
| Which of the following types of transactions result in capital losses that are NOT deductible for tax purposes? (Check all that apply.) | Sales of personal-use assets Sales to related parties Wash sales |
| Which of the following types of income are generally included in the calculation of investment income? (Check all that apply.) | Net short-term capital gains Interest income Non-qualified dividends |
| If a taxpayer sells a personal-use asset at a gain, the taxpayer Blank______ recognize a capital gain. If a taxpayer sells a personal-use asset at a loss, the taxpayer Blank______ recognize a capital loss. | will will not |
| True or false: All net capital gains are included in the definition of net investment income. | False |
| What is the rate of the additional tax that is assessed on net investment income when it exceeds specified thresholds? | 3.8% |
| In order for a taxpayer to be able to deduct the loss on a business activity in which she is an owner, she must demonstrate that she ________ ___________ in the conduct of the business. If she does NOT, the activity is considered to be a passive activity. | materially participate |
| The net investment income tax is imposed on the _______ of (a) net investment income or (b) the excess of _________ AGI over a specific level depending on filing status. | lesser modified |
| A taxpayer's income or loss for the year is classified into one of three categories: ________ income/loss, __________ income/loss, and ___________ income/loss. | passive portfolio active |
| True or false: A suspended loss on a passive activity can be used to offset active and portfolio income in the year the taxpayer sells or divests of the activity. | True |
| Which of the following statements regarding material participation is TRUE? | A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels |
| The entire $25,000 deduction for rental real estate is phased out when the taxpayer's AGI reaches $ ________ | 150,000 |
| Which of the following statements is true when considering the deductibility of a suspended passive loss? | The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity. |
| If a taxpayer is an active participant in a rental activity, she may be allowed to deduct up to $________ in rental losses against other types of income. | 25,000 |
| True or false: Net passive income is included with net investment income and, therefore, may be subject to the 3.8% additional tax on net investment income. | True |
| Which of the statements regarding the deductibility of a suspended passive loss are true? (Check all that apply.) | The suspended loss may be deducted against active or portfolio income when the taxpayer sells or divests of the passive activity. The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity. |
Created by:
maddieestanfield