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Exam 16: Investment and Personal Financial Planning

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Question 31

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Mr. Carp, a single taxpayer, recognized a $44,000 long-term capital gain, a $12,000 short-term capital gain, and a $10,000 long-term capital loss. Compute Mr. Carp's 2020 income and Medicare contribution tax if his taxable income before consideration of his capital transactions is $465,000, none of which is investment income

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Net long-term capital gain is $34,000 ($...

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Question 32

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All gratuitous transfers of property are subject to gift tax.

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Question 33

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Electing to reinvest dividends in additional shares of stock does not defer income recognition.

Ms. Martin received $80,000 from a $100,000 life insurance policy as an accelerated death benefit. None of the $80,000 is taxable to her.

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 a nontaxable return of capital. Compute Calvin's tax basis in his 60 shares at year-end.

Twenty years ago, Mrs. Cole purchased an insurance policy on her own life. Mrs. Cole died this year, and the policy paid the $300,000 death benefit to her son Jeffrey. During her life, Mrs. Cole paid total premiums of $71,200 on the policy. Which of the following statements is true?

Up to $100,000 of loss recognized on the sale of Section 1244 stock by a married individual filing a joint return is characterized as ordinary loss.

Mr. Lainson died this year on a date when the total FMV of his property was $12 million and his debts totaled $450,000. His executor paid $15,000 of funeral expenses and $50,000 of accounting and legal fees to settle the estate. Mr. Lainson bequeathed $1 million to Villanova University, $200,000 to the Lutheran church, and $3.5 million to his surviving spouse. He left the remainder of the estate to his children. Compute Mr. Lainson's taxable estate.

At the beginning of the year, Ms. Faro paid $15,000 for 750 shares of Gravois stock. She instructed her broker to reinvest any dividends in additional Gravois shares. Her Form 1099-DIV reported that she earned $820 dividend income which purchased 39 additional shares. Which of the following statements is true?

Qualified dividend income earned by individual taxpayers is taxed at a maximum income tax rate of 20%.

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

Mr. and Mrs. Philips recognized the following capital gains and losses this year. $\begin{array}{lll}\text { Short-term capital gain } & \$ & 10,000 \\\text { Short-term capital loss } & \$ & (4,000 ) \\\text { Long-term capital gain } & \$ & 45,000 \\\text { Long-term capital loss }& \$ & (60,000) \end{array}$ Their AGI before consideration of these gains and losses was $140,000. Compute their AGI.

Lindsey owns and actively manages an apartment complex. This year, the complex generated a $40,300 net loss. If Lindsey's AGI before considering this loss is $118,200 and she owns no other passive activities, how much of the loss is deductible this year?

Which of the following statements about Section 1244 stock is true?

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

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

Three years ago, James loaned $60,000 to his friend. The debt is now uncollectible. If the loan created a bona fide debt, James recognizes a capital loss.

Mrs. Heyer inherited real estate from her mother. The mother's basis in the real estate was $382,000, and the fair market value at the date of the mother's death was $900,000. The mother's taxable estate was only $2.4 million, so the estate did not owe any federal estate tax. This year, Mrs. Heyer sold the real estate for $875,000. Compute her gain or loss recognized on sale.

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

Mr. Gray recognized a $60,000 loss on sale of his entire interest in a passive activity. He had a $52,000 ordinary passive activity loss carryforward from prior years. Mr. Gray can deduct the $52,000 ordinary passive activity loss in the year of sale.