63. Frederick Tims, a single individual, sold the following investment assets in 2011.
If Frederick’s taxable income before considering the above sales is $100,000, compute his taxable income
and regular tax liability.
A. Taxable income $125,000; tax liability $32,470
B. Taxable income $100,000; tax liability $21,720
C. Taxable income $125,000; tax liability $25,367
D. Taxable income $125,000; tax liability $28,720
64. Tom Johnson, whose marginal tax rate on ordinary income is 35%, sold four investment assets resulting
in the following capital gains and losses.
How much of Tom’s net capital gain is taxed at 15%?
65. Mr. Quinn recognized a $900 net short-term capital gain and a $1,380 long-term capital gain this year.
Which of the following statements is false?
If Mr. Quinn’s marginal tax rate on ordinary income is 15%, the tax liability on his capital gains is
If Mr. Quinn’s marginal tax rate on ordinary income is 33%, the tax liability on his capital gains is
C. Only $1,380 of the capital gain is subject to a preferential tax rate.
D. None of the above is false.
66. Kate recognized a $25,700 net long-term capital gain and a $33,000 net short-term capital loss this year.
What is her current net tax cost or savings from her capital transactions if her marginal rate on ordinary
income is 28%?
B. $840 net tax savings
C. $2,044 net tax savings
D. $3,015 net tax cost
67. Ms. 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 tax cost from her capital transactions if her marginal rate on ordinary income
68. Mr. and Mrs. Philips recognized the following capital gains and losses this year.
Their AGI before consideration of these gains and losses was $140,000. Compute their AGI.
69. Which of the following statements about the individual capital gains and losses is false?
A. Gain on sale of Section 1231 depreciable real property is taxed at a 25% maximum rate.
B. Short-term capital gains are taxed as ordinary income.
C. Capital losses are deductible only against capital gains.
D. Nondeductible capital losses are carried forward for deduction against future capital gains.
70. This year, Ms. Kwan recognized a $16,900 net long-term capital loss. Which of the following statements
A. Ms. Kwan has a $16,900 long-term capital loss carryforward into future years.
B. Ms. Kwan has a $16,900 nondeductible loss that she can carry back three years and forward five years.
C. Ms. Kwan can deduct $3,000 of the loss as an itemized deduction.
D. None of the above is true.
71. In 2001, Mrs. Qualley, contributed $100,000 in exchange for 1,000 shares of Little Corporation, which
is a qualified small business. This year, Mrs. Qualley’s only capital transaction was the sale of the 1,000
shares of Little qualified small business stock for $180,000. Compute Mrs. Qualley’s tax on her capital
gain from this sale.
D. None of the above.
72. Mr. Forest, a single taxpayer, recognized a $252,000 loss on the sale of Section 1244 stock. What is the
character of this loss?
A. $50,000 ordinary and $202,000 capital
B. $100,000 ordinary and $152,000 capital
C. $252,000 capital
D. $252,000 ordinary
73. In 1996, Mr. Exton, a single taxpayer, contributed $30,000 in exchange for 100 shares of Morton stock.
In 2005, he paid $43,000 to another shareholder to purchase 100 more shares of Morton stock. Morton
stock qualified as Section 1244 stock when it was issued. This year, Mr. Exton sold his 200 Morton
shares for $250 per share. What is the amount and character of Mr. Exton’s recognized loss?
A. $23,000 ordinary loss
B. $23,000 long-term capital loss
C. $3,000 long-term capital gain and $30,000 ordinary loss
D. $5,000 long-term capital loss and $18,000 ordinary loss
74. Which of the following statements about Section 1244 stock is true?
A. Some portion of a loss recognized on sale of Section 1244 stock is an ordinary deduction.
B. Gain recognized on sale of Section 1244 stock is taxed at a 28% maximum rate.
Individuals may purchase Section 1244 stock directly from the issuing corporation or from another
D. Corporations may issue an unlimited amount of Section 1244 stock.
75. Ms. Kerry, who itemized deductions on Schedule A, paid $15,000 interest on funds borrowed to acquire
taxable bonds. She also paid $660 of management fees that were fully deductible on Schedule A. Her
AGI is $100,000, which includes $19,700 of interest income. How much of the interest expense can she
76. Ms. Lopez paid $7,260 interest on a mortgage on undeveloped land that she holds as an investment. Ms.
Lopez’s AGI is $112,200, which includes $4,900 interest income from a certificate of deposit. Which of
the following statements is true?
A. Ms. Lopez can’t deduct any of the $7,260 interest expense.
B. Ms. Lopez can deduct $7,260 interest expense as an itemized deduction.
C. Ms. Lopez can deduct $4,900 interest expense as an itemized deduction.
D. Ms. Lopez can deduct $4,900 interest expense as an above-the-line deduction.
77. Which of the following statements about investment interest expense is true?
A. The interest is allowed as an above-the-line deduction.
B. The interest is allowed as a miscellaneous itemized deduction.
C. Nondeductible interest carries forward into future years.
D. The interest is deductible to the extent of the individual’s gross investment income.
78. This year, Mr. and Mrs. Lebold paid $3,100 investment interest expense. They earned $4,750 investment
income consisting of $1,900 interest and $2,850 qualified dividends, and they incurred no investment
expenses. Which of the following statements is true?
The Lebolds can deduct $3,100 interest expense if they elect to treat $1,200 of the qualifying dividends
as ordinary income not taxed at a preferential rate.
The Lebolds can deduct $3,100 interest expense if they elect to treat the qualifying dividends as
ordinary income not taxed at a preferential rate.
C. The Lebolds can deduct $3,100 interest expense because their investment income exceeds $3,100.
D. The Lebolds’ deduction for their interest expense is limited to $1,900.
79. Which of the following statements about an investment in undeveloped land is false?
An investor can elect to capitalize interest expense on a mortgage incurred to purchase the
B. An investor can elect to capitalize property taxes on undeveloped land.
C. An investment in undeveloped land is considered a liquid asset.
D. Gain recognized on the sale of undeveloped land held as an investment is capital gain.
80. Ms. Regga, a physician, earned $375,000 from her medical practice and $20,500 interest and qualified
dividends from her investment portfolio. She was allocated a $67,000 loss from a passive activity.
Compute Ms. Regga’s AGI.
D. None of the above
81. Mr. and Mrs. Sturm actively manage an office building that they purchased in January 1997. This year,
the office building generated a $68,000 net loss. The couple’s had the following sources of income
How much of the rental loss is deductible this year?
82. 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?
D. None of the above