Tax- series 7 Exam With Complete Solutions
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All of the following would be taxed at "earned income" rates under IRS regulations
EXCEPT: - ANSWER -Interest payments
Under the Internal Revenue Code, royalty income from books, plays, or magazine
articles, is reported as: - ANSWER -earned income
Which of the following would be defined as "portfolio income" under IRS regulations? -
ANSWER -Long term capital gains
Royalties received from an oil and gas program are: - ANSWER -passive income
Passive losses incurred by an investor in a limited partnership can be deducted against:
- ANSWER -income earned from direct investments in real estate
Passive losses incurred by an investor in a limited partnership can be deducted against:
- ANSWER -passive income earned from other investments in limited partnerships
-income earned from direct investments in real estate
A client has passive losses of $10,000 from an investment in a limited partnership. If the
client has passive income of $10,000 for that tax year the client may deduct: - ANSWER
-$10,000
A client has passive losses of $20,000 from an investment in a limited partnership. If the
client has passive income of $3,000 for that tax year the client may deduct: - ANSWER
-$3,000
,A client has a $10,000 passive loss from an investment in a limited partnership. If the
client has no other passive income for that tax year, the client may deduct: - ANSWER -0
A client has a $20,000 passive loss from an investment in a limited partnership. If the
client has no other passive income for that tax year, the client may deduct: - ANSWER -0
The lower 15% tax rate applies to: QUESTION cash dividends received from stock
investments
Which of the following securities transactions would result in a short term capital gain?
QUESTION Buy 100 shares of ABC stock at $50 on January 2, 2014
Sell 100 shares of ABC stock at $60 on July 2, 2014
Under Internal Revenue guidelines, a short term profit on securities is one which results
from a - ANSWER -long sale, at a price higher than the security's cost basis, made within
one year following purchase
Which of the following statements are TRUE about capital gain taxation? - A capital gain
is considered to be short term if a position is liquidated at a profit after being held for 1
year or less
For investors in the highest tax bracket, any gains they realize as short term capital
gains will be taxed at the same rate as that bracket
Under IRS regulations, a gain or loss upon current disposition of an asset is first
considered to be long term if the asset has been held for: - ANSWER -over 1 year
Which statement is TRUE about capital gains taxes? A gain on a security held over: -
ANSWER -12 months is taxed at a lower rate than a gain on a security held over 9
months
,A customer is in the 28% tax bracket and has $9,000 of capital losses and $5,000 of
capital gains. How much loss is deductible from this year's tax return? - ANSWER
-$3,000
A customer is in the 28% tax bracket and has $5,000 of capital losses and $3,000 of
capital gains. How much net capital loss is deductible from this year's tax return? -
ANSWER -$2,000
-Customer has a capital gain of $3,000 and a capital loss of $5,000, net capital loss of
$2,000. The customer can deduct the whole net loss of $2,000 as this is within the
maximum $3,000 per year net capital loss deduction.
For the same year, the client has $14,000 of long-term capital losses on stock positions
and $4,000 of short-term capital gains on option positions. Which statement is TRUE? -
ANSWER -The capital losses can be netted against the capital gains and a $10,000 net
capital loss is reported, $3,000 of which is deductible
An investor's securities portfolio has declined in value by $6,000 this year. How much of
the loss may the investor deduct on this year's tax return? - ANSWER -0
-An investor cannot deduct depreciation of an asset that still is held as a capital loss. He
or she must sell those securities before the loss is recognized. Investors are able to
deduct only $3,000 of net realized capital losses per year.
January, 20XX - customer buys 100 shares of ABC stock at $30/sh and pays a $1/sh
commission. During the year, the customer collects $1 cash dividend. Customer cost
basis in the - ANSWER -$31/sh
Commissions paid upon the purchase of a stock are not deductible against income; they
are part of the cost basis of the shares. Thus, the basis for tax purposes is $30 + $1
commission = $31 per share. The $1 dividend received is included in taxable income for
this year, and is not part of the stock's cost basis.
A Company declares a cash dividend on Wednesday, December 1. The record date is
, set as Tuesday, December 21, and the dividend will be paid on Friday, December 31.
The ex date will fall on Friday, December 17. The "tax event" occurs on: - ANSWER
-Friday, December 31st
A Company declares a $3.00 dividend on Tuesday, December 6th. The record date is
established as Friday, December 30th, and the dividend will be payable on January 6th.
Using the above advice the ex date would be December 28th. To the owner receiving the
dividend, the "tax event" occurs on: - ANSWER -January 6th
For tax purposes, any amount of payment from an issuer to securities holders is deemed
to be received when the check was mailed by the issuer. In this case, the check is
mailed on January 6th, being the payable date; hence the income is taxable as of the
payable date.
Which of the following date is relevant for tax purposes regarding issuance of cash
dividend payments by issuers to securities holders? ANS - Payable date
Which of the following are taxable in the year of receipt? -ANSWER--Interest earned
from investments
-Cash dividends from investments
Client purchases 1,000 shares of ABC stock at $58/share with a $2 commission per
share. ABC stock declares a 20% stock dividend. Tax status of investment at declaration
and at payment: - ANSWER - 1,200 shares held at $50/share cost
Five years ago, the customer purchased 1,000 shares of ABC stock at $60 per share.
The stock has appreciated to $100,000 in value and is now worth that amount. The
company announces it is spinning off a subsidiary, DEF, to its shareholders. The value of
the new company being spun off equals 10% of the old company. The customer will
have: - ANSWER -$54,000 cost basis in ABC; $6,000 cost basis in DEF
There is no change in the aggregate cost basis in a spin-off. The original investment in
ABC stock had a cost basis of $ 60,000. This represents the fact that there is a 10% spin
off, implying that 10% of this value is now attributed to the newly spun-off DEF shares = $
6,000. The remaining value of the ABC shares is $ 60,000 - $ 6,000 = $ 54,000. The
current market value has nothing to do with the cost basis.