Tax- series 7
A customer has $20,000 in passive losses from a limited partnership investment. If the customer has $3,000 of passive income for that tax year, the customer may deduct:
-$3,000
A customer in the 28% tax bracket has $9,000 of capital losses and $5,000 of capital gains. How much loss is deductible from this year's tax return?
-$3,000
Which of the following securities transactions would result in a short term capital gain?
-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
-long sale, at a price higher than the security's cost basis, made within one year following purchase
A customer has purchased 20,000 shares of Ou-La-La stock, a French clothing company. The stock is not traded in the United States. Ou-La-La declares and pays a dividend of 1,125 Euros, which, when converted to dollars equals $1,000. France imposes a 20% withholding tax on dividends repatriated outside its borders. How is the dividend reported on this investor's U.S. tax return?
-$1,000 of dividends are reported, along with a $200 tax credit for monies withheld in France -Reason:If a direct investment is made in a foreign security, that foreign country often withholds tax on dividends repatriated out of that country. If this occurs, the tax withheld is applied as a tax credit on that person's U.S. tax return. Thus, this person who received $1,000 of dividends, but who has $200 of taxes withheld on those dividends in France, would report the entire $1,000 of dividends received, along with a $200 tax credit for the tax withheld in France.
A customer has $10,000 in passive losses from a limited partnership investment. If the customer has $10,000 of passive income for that tax year, the customer may deduct:
-$10,000
A customer in the 28% tax bracket 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?
-$2,000 -The customer has a capital gain of $3,000 and a capital loss of $5,000, for a net capital loss of $2,000. The entire net $2,000 loss is deductible since it does not exceed the maximum $3,000 per year net capital loss deduction.
An individual sells 200 shares of stock short at $60 per share and buys back the position 2 years later at $50 per share. The investor has a:
-$2,000 short term capital gain -Reason: When an individual sells stock short, a holding period is never established. Because of this, all gains and losses are always short term.
A customer sells short 100 shares of ABC stock at $63 per share. The stock falls to $47, at which point the customer writes 1 ABC Sept 45 Put at $2. The stock falls to $36 and the put is exercised. The customer's gain per share is:
-$20 -The customer sold the stock short at $63 per share (sale proceeds). Later, the customer sold a Sept 45 Put @ $2 on this stock. If the short put is exercised, the customer is obligated to buy the stock at $45 per share. Since the customer received $2 in premiums when the put was sold, the net cost to the customer is $43 per share for the stock (this is the cost basis in the stock for tax purposes). The stock that has been purchased is delivered to cover the short sale, closing the transaction. The customer's gain is: $63 sale proceeds - $43 cost basis = 20 point gain.
A customer buys a $100,000 - 30 year U.S. Government bond with 10 years left to maturity in the secondary market at 80. The customer does not elect to accrete the discount annually. At maturity, the customer will have:
-$20,000 of taxable interest income
A customer sells short 1,000 shares of PDQ stock at $55 in a margin account. The stock starts to drift lower in price and 15 months later, the customer covers the short positions by purchasing the shares at $30. The customer will have a:
-$25,000 short term capital gain -Reason: When there is a short sale of stock, the stance of the IRS is that, since the position is never "owned," there can never be a holding period. Thus, all gains and losses on short positions are always short-term. This customer sold the stock short for $55,000 and, 15 months later, purchased the shares to cover at $30,000. The customer has a $25,000 gain, but it is taxed as a short-term capital gain
A customer buys 100 shares of XYZ stock at $30 per share. The customer then sells 1 XYZ 30 Call contract for a premium of $300. The call contract expires unexercised. After expiration, the customer's cost basis in the XYZ shares is
-$3,000 -The expiration of the call contracts results in a short term capital gain to the writer of $300, taxable in that year. The cost basis of the stock position is unaffected at $30 per share, for a total cost basis for 100 shares of $3,000. Notice that this tax treatment is the one that is most beneficial to the IRS; and worst for the investor. The call premium is taxed as a short term capital gain at expiration; it cannot be used to reduce the cost basis of the long stock position, which has the same effect as increasing the potential capital gain on the stock
January, 20XX a customer buys 100 shares of ABC stock at $30 per share and pays a $1 commission per share. The customer receives $1 in cash dividends during the year. The customer's cost basis in the
-$31 per share -When the stock is purchased, any commission paid is not deductible - it is part of the cost basis of the shares. Thus, the cost 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 bank trust company buys $100,000 face amount 20 year G.O. bonds in the secondary market with a remaining life of 10 years at 90. For book purposes, the bank accretes the bonds on a straight line basis. For tax purposes, the bonds are valued at cost. If the bonds are sold after 4 years at 96, the tax consequences are:
-$4,000 of taxable interest income and $2,000 of capital gain
A customer buys 100 shares of XYZ stock at $36 and buys 1 XYZ Jan 35 Put @ $6 on the same day. For tax purposes, what is the cost basis of the stock?
-$42 -When a put is purchased on a stock on the same day that the stock is bought, the put is said to be "married" to the stock position. The only reason the option was purchased was to protect the customer against loss if the market for the stock fell. It was not purchased to speculate in the market. The IRS treats a "married" put as part of the cost basis of the stock. Notice that, therefore, the put premium cannot be deducted as a capital loss if the put expires worthless; instead, it has increased the stock's cost basis and will reduce any potential capital gain, when, and if, the stock is sold. As one would expect, this is the tax treatment that is most beneficial to the IRS and least beneficial to the investor. The cost of the stock is $36 + $6 premium = $42 per share. When the stock is sold the customer reports a capital gain or loss based on the sale price of the stock.
A customer buys a municipal bond in the secondary market at 104 with 8 years left to maturity. The customer sells after 2 years at 103 1/2. The tax consequence is:
-$5 capital gain
A customer buys $100,000 of 30 year corporate bonds with 20 years remaining to maturity at 95. The customer elects not to accrete the discount annually. At maturity, the customer will have:
-$5,000 of taxable interest income
Two years ago, an individual had invested $5,000 in a mutual fund. Over the two years, the fund has distributed $100, consisting of $75 of dividends and $25 of capital gains. The investor has reinvested these distributions in additional shares of the fund. The investor's aggregate current cost basis in the fund is:
-$5,100 -This investor had a beginning basis of $5,000. Over the two years, the $100 of distributions received were all subject to tax on those years' tax returns. The reinvestment of these monies into new fund shares increases the basis from $5,000 to $5,100. The investor will have a capital gain if he or she sells all the shares for more than $5,100. He or she will have a capital loss if the sale proceeds are less than $5,100.
A customer buys 1 ABC Jan 60 Put @ $5 when the market price of ABC is $58. The put is exercised when the market price is $51. For tax purposes, the sale proceeds are:
-$5,500 -When a put is exercised, a sale takes place. The holder is selling for $60, but paid $5 in premiums, for a net sale price of $55 per share or $5,500 for the contract.
On June 12th, a customer buys 100 shares of DEF stock at $49 per share. On June 30th of the same year, the customer sells the stock at $39. On July 10th of the same year, the customer buys DEF stock at $42. The customer's cost basis in DEF stock is:
-$52 -Since the customer sold the stock at a loss, and then repurchased the position within 30 days, this is considered a "wash sale" and the loss is disallowed for tax purposes. Instead, the loss on the stock is added to the cost of the repurchased position. The customer originally bought the stock at $49 and sold it at $39, for a $10 loss per share. The customer repurchased the stock at $42. The adjusted cost basis on the stock is $42 + $10 loss = $52 per share.
A customer buys 1 ABC Oct 50 Call @ $3 and exercises the contract. What is the cost basis for tax purposes?
-$53 -When a call contract is exercised, the customer is buying the stock. The customer establishes a cost basis equal to all monies paid for the stock - $50 per share strike price plus $3 per share paid in premiums equals a $53 per share cost basis. Notice that the basis is the same as the breakeven.
Five years ago, a customer purchased 1,000 shares of ABC stock at $60 per share. The stock has appreciated in value and is currently worth $100,000. The company announces that 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:
-$54,000 cost basis in ABC; $6,000 cost basis in DEF -The aggregate cost basis does not change in a spin-off. The original investment in ABC stock had a cost basis of $60,000. The 10% spin off means 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 cost basis.
A customer is short 100 shares of PDQ stock at $62 per share. The stock goes up to $67 and the customer covers the position. If, 30 days later, the customer decides to re-establish this short position when the market for PDQ is $65, what will the sale proceeds be?
-$60 per share -Reason:In this transaction, the customer is attempting to take a loss and then reestablish the position. Under the "wash sale" rule, the loss deduction is disallowed if the position is reestablished within 30 days of the date the loss was generated. In this case the customer originally sold short the stock at $62. The stock was repurchased at $67, for a $5 loss per share ($500 loss on 100 shares). Then, the customer sold short another 100 shares exactly 30 days later at $65 (to avoid the "wash sale" rule, the position cannot be reestablished until the 31st day). Thus, the $500 loss is disallowed. The $5 per share loss will be deducted from the sale proceeds of $65, for a new sale proceeds of $60. In essence, this defers the taking of the loss until this short position is covered.
A customer sells short 100 shares of ABC stock at $74 per share. The stock falls to $66, at which point the customer writes 1 ABC Sept 65 Put at $3. The stock falls to $58 and the put is exercised. The customer's cost basis upon exercise of the put is:
-$62 -The customer sold the stock short at $74 per share (sale proceeds). Later, the customer sold a Sept 65 Put @ $3 on this stock. If the short put is exercised, the customer is obligated to buy the stock at $65 per share. Since the customer received $3 in premiums when the put was sold, the net cost to the customer is $62 per share for the stock (this is the cost basis in the stock for tax purposes). The stock that has been purchased is delivered to cover the short sale, closing the transaction. The customer's gain is: $74 sale proceeds - $62 cost basis = 12 point gain.
A customer buys $10,000 of 30 year corporate bonds with 10 years left to maturity at 92. The customer elects not to accrete the discount annually. At maturity, the customer will have
-$800 of taxable interest income
A customer has $10,000 in passive losses from a limited partnership investment. If the customer has no other passive income for that tax year, the customer may deduct:
-0
A customer has $20,000 in passive losses from a limited partnership investment. If the customer has no other passive income for that tax year, the customer may deduct:
-0
An investor's securities portfolio has depreciated by $6,000 this year. How much of the loss can the investor deduct on this year's tax return?
-0 -An investor cannot deduct depreciation of an asset that is currently held as a capital loss. To recognize the loss for tax purposes, he or she must first sell those securities. Investors can only deduct $3,000 of net realized capital losses per year.
An institutional customer borrows $10,000,000 and uses the funds to buy municipal bonds. How much of the annual interest expense on the borrowed funds is tax deductible?
-0% -Because municipal interest income is not taxable by the Federal government, all expenses associated with keeping municipal bonds are not tax deductible. These expenses include interest on loans used to finance the purchase of municipal bonds, safe deposit box charges for holding the bonds, etc.
A customer has purchased 1,000 shares of ABC stock at $58 per share, paying a commission of $2 per share for the transaction. ABC stock declares a 20% stock dividend. When the dividend is paid, the tax status of the investment is:
-1,200 shares held at a cost basis of $50 per share
In 2014, a customer buys a 3% U.S. Government bond maturing in 2018 at 102. The customer elects to amortize the bond premium for tax purposes. If the bond is sold after 2 years, its cost basis at that time is:
-101 -Since the bond has 4 years to maturity, the annual amortization amount is 2 points divided by 4 years = 1/2 point per year. If the bond is sold after 2 years, 1 point of the premium will have been amortized. Thus, the bond's adjusted cost basis is 102 - 1 = 101
In 2014, a customer buys a 3 3/4% U.S. Government bond maturing in 2023 at 104-16. The customer elects to amortize the bond premium for tax purposes. If the bond is sold after 2 years, its cost basis at that time is:
-103-16 -This Government bond costs 104-16, for a premium of 4 and 16/32nds = 4 1/2 points. Since the bond has 9 years to maturity, the annual amortization amount is 4 1/2 points divided by 9 years = 1/2 point per year. If the bond is sold after 2 years, 1 point of the premium will have been amortized. Thus, the bond's adjusted cost basis is 104 1/2 - 1 = 103 1/2. Converting to Government bond quotes (in 32nds), this equals 103-16
Which statement is TRUE about capital gains taxes? A gain on a security held over:
-12 months is taxed at a lower rate than a gain on a security held over 9 months
A $100,000 municipal bond is purchased by a financial institution in the secondary market at 95. For tax purposes, the institution opts to not accrete the bond. The bond has 10 years to maturity. The bond is sold after 4 years at 98. The tax consequence is:
-2 points of interest income and a 1 point capital gain
A 7%, 15 year corporate bond is priced to yield 7.50%. For an investor in the 28% tax bracket, the equivalent tax free yield is:
-5.40% Tax Yield x (100%-Tax Bracket%)= Free Yield
An investor buys a 10% municipal bond in the secondary market on an 8% basis. If the bond is held to maturity, considering income and capital gains taxes, the investor's after-tax yield will be:
-8% -Municipal bonds purchased at a premium, whether in the primary or secondary market, are subject to amortization of the premium. Every year, the investor's non-taxable interest income is reduced by the amortization amount. At the same time, the bond's cost basis is reduced by the amortization amount. At maturity, there is no capital gain or loss on the bond since the adjusted cost basis has been amortized to $1,000 and the bond is redeemed at $1,000. Thus, the after-tax yield on the bond will simply be the 8% yield to maturity that was quoted.
Which statements are TRUE regarding the taxation of capital gains?
-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 maximum tax bracket, any short term capital gains will be taxed at the same tax rate as that bracket
Generally, which of the following statements are TRUE regarding the taxation of a municipal security?
-Capital gains from selling municipal bonds are fully taxable -Interest income received from municipal bonds is taxable only on the State and Local levels
Which of the following is reported on Form 1099-DIV?
-Cash dividends
Regarding corporate discount bonds, which statements are TRUE?
-Corporate original issue discount bonds must be accreted -Corporate market discount bonds may be accreted
To avoid the application of the "wash sale rule" securities sold at a loss on October 31st, can first be bought back on:
-December 1st -Reason: Under the wash sale rule, if a security is sold at a loss, and the same or similar security is purchased within 30 days, the loss deduction is disallowed. To avoid the wash sale rule, the securities can be repurchased 31 or more days after the sale date. Since the securities were sold at a loss on October 31st, 31 days later is December 1st
If a customer does not give a broker his or her instructions, cost basis reporting on Form 1099-B for a stock holding where there have been multiple purchases at different times is done on a:
-FIFO basis
A corporation declares a cash dividend on Wednesday, December 1st. The record date is set at Tuesday, December 21st, with the dividend payable on Friday, December 31st. Based on this information, the ex date is set at Friday, December 17th. The "tax event" occurs on:
-Friday, December 31st
Interest income from which of the following securities is FULLY taxable by Federal, State, and Local government?
-Government National Mortgage Association (Ginnie Mae) Mortgage Backed Pass-Through Certificates -Federal National Mortgage Association (Fannie Mae) Debentures
Which of the following are taxable in the year of receipt?
-Interest earned from investments -Cash dividends from investments
All of the following would be taxed at "earned income" rates under IRS regulations EXCEPT:
-Interest payments
The ultimate authority for determining the amount of the discount that must be accreted on "original issue discount" bonds (OID's) is the:
-Internal Revenue Service
A corporation declares a dividend of $3.00 on Tuesday, December 6th. The record date is set at Friday, December 30th, with the dividend payable on January 6th. Based on this information, the ex date is set at December 28th. For the recipient of the dividend, the "tax event" occurs on:
-January 6th -For tax purposes, payments by issuers to securities holders are considered to be received as of the date the issuer sends the check. In this case, the check is sent on January 6th (payable date), therefore the income is taxable as of this date.
A customer can have a long term capital loss if which of the following options positions are taken on their first offering date and expire worthless at expiration?
-Long Equity LEAP Option -Since regular stock options have a maximum life of 8 months, all gains and losses are short term. Regarding equity LEAPs, these are Long Term Equity AnticiPation options with lives of 30 months (2 1/2 years). Thus, a purchaser who buys a LEAP when it first starts trading, must have held the contract for over 1 year when it expires - thus, the holder has a long term capital loss. The writer (seller) of a LEAP that expires will always have a short term capital gain at expiration because the IRS views the writer as a "short seller" who never had a holding period in the position
Which of the following would be defined as "portfolio income" under IRS regulations?
-Long term capital gains
There is no real benefit for the manager of a pension plan to invest in which of the following securities?
-Municipal Bonds
Which of the following statements are TRUE regarding the amortization of the premium on a municipal bond?
-Municipal bonds purchased in the primary market at a premium must be amortized -Municipal bonds purchased in the secondary market at a premium may be amortized at the option of the bondholder
Regarding municipal discount bonds, which statements are TRUE?
-Municipal original issue discount bonds must be accreted -Municipal market discount bonds may be accreted
Regarding municipal premium bonds, which statements are TRUE?
-Municipal original issue premium bonds must be amortized -Municipal market premium bonds must be amortized
A customer makes an investment in a CMO. In a given year, she receives $24,000 of payments, of which $6,000 is principal and $18,000 is interest. Which statement is TRUE about the taxation of the payments received?
-Only the interest amount received is taxable
For tax purposes, cash dividend payments by issuers to securities holders are taxable as of which date?
-Payable date
Regarding the tax treatment of secondary market municipal discount and premium bonds which of the following statements are TRUE?
-Premium bonds must be amortized -Discount bonds are accreted at the option of the bondholder
All of the following will affect the counting of the holding period of ABC stock EXCEPT:
-Selling an ABC put contract after the position has been held for 9 months
A municipal bond is purchased in the secondary market at a discount and the bond is held to maturity. If the discount has not been accreted, what is the tax consequence at maturity?
-Taxable interest income equal to the discount
A customer has purchased shares of stock over an extended period of time at varying prices. The customer now sells some of the shares. Which statements are TRUE regarding the tax treatment of the sale?
-The Tax Code allows specific identification of the shares being sold -FIFO accounting must be used to establish the cost basis of the shares sold, if no other tax election is available
If a new issue municipal bond is purchased at a discount, which statement is TRUE?
-The basis of the bond increases proportionately throughout the life of the bond
In the same year, a customer has $14,000 of long-term capital losses on stock positions and $4,000 of short-term capital gains on options positions. Which statement is TRUE?
-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
A customer buys 1 ABC Jul 45 Call @ $5. The customer lets the contract expire when the market price is $40. Which statement is TRUE?
-The customer has a capital loss of $500
Which statements are TRUE about market discount corporate bonds?
-The discount may be accreted over the life of the bond and taxed annually as interest income -The discount need not be accreted over the bond's life and will be taxed as interest income earned when the bond matures or is sold
A customer buys a municipal bond in the primary market at a discount. Which of the following statements are TRUE regarding the discount and the tax consequence?
-The discount must be accreted -The discount is not taxable
Which statement is TRUE about original issue discount corporate bonds
-The discount must be accreted over the life of the bond
Which of the following statements are TRUE regarding corporate bonds purchased in the secondary market at a discount?
-The discount will be taxed as ordinary income -The discount may be accreted
A U.S. investor has realized a $4,000 capital gain on Kingdom of Norway bonds. Which statement is TRUE regarding the taxation of the gain?
-The gain is 100% taxable within the United States at U.S. tax rates
An investor goes short against the box to lock in a gain on a stock position that has been held for 11 months. 3 months later, the investor closes the short position with his long shares. Which of the following statements are TRUE?
-The holding period of the underlying stock stopped counting as of the short sale date -The gain will be taxed as a short term capital gain
Which statement is TRUE regarding dividend and capital gain distributions made by mutual funds?
-The payments are taxable in the year they are distributed
A municipal bond "tax swap" is described by which of the following?
-The purchase and sale of similar, but not identical bonds -The "swap" is employed to incur a capital loss for that year
A customer buys 1,000 shares of PDQ stock at $30. The stock declines to $20, and the customer sells the position at a long term loss in November. 25 days after selling the stock, the customer sells 10 PDQ Jan 30 Puts @ $13. Which statement is TRUE?
-The sale of the put is considered to be a "repurchase" of the securities under the "Wash Sale Rule" and the loss is disallowed
A customer switches from a growth fund to an income fund within the same "family of funds." Which statement is TRUE?
-The sale results in a "taxable event" on which tax on any gain is due, and the purchase establishes a new cost basis
Straight line accretion of a municipal bond discount will cause the:
-bond's cost basis to be increased by equal amounts each year -amount of any potential capital gain on sale to decrease each year
A customer buys 1 ABC Jan 50 Call @ $4 when the market price of ABC is $51. The stock then moves to $58 and the customer exercises the option and sells the stock at the market. The tax consequence is a:
-capital gain of $400 -If a customer exercises a call, he is buying the stock at the strike price. The customer's cost basis is the purchase price of the stock ($50) plus the premium paid ($4) = $54. Since the customer sold the stock at $58, he or she will have a capital gain of $400.
The lower 15% tax rate applies to:
-cash dividends received from stock investments
All of the following statements regarding original issue bonds are true EXCEPT
-corporate premium bonds must be amortized
A customer sells 1 XYZ July 45 Call @ $2 after having purchased 100 shares of XYZ @ $42 per share. If the customer is exercised, the tax consequences are:
-cost basis of $42 per share -sale proceeds of $47 per share
The put is exercised when the market price of ABC is $45. The customer liquidates the stock position 3 weeks later at $49 per share. Upon exercise, the tax
-cost basis of $43 per share -If a short put is exercised, the writer is required to buy the stock at the strike price ($50). Since $7 per share was received in premiums, the writer's cost of the stock is $43 per share for tax purposes. The writer sells the stock later in the market for $49 per share, for a $6 per share capital gain.
An investor is considering a municipal bond swap. All of the following should be considered when determining whether a municipal bond tax swap will result in a "wash sale" EXCEPT:
-dated date
Straight line amortization for municipal bonds is the annual:
-decrease of the cost basis of a premium bond performed according to IRS rules
Amortization of a bond premium will:
-decrease the bond's cost basis -decrease annual reported interest income
Under the Internal Revenue Code, royalty income from books, plays, or magazine articles, is reported as:
-earned income
An investor in a limited partnership generating passive losses can offset these against:
-income generated from direct investments in real estate
Straight line accretion for municipal bonds is the annual:
-increase in the cost basis of a discount bond performed according to IRS rules
Selling short against the box:
-locks in a gain and is taxable that year -Reason: When an individual sells stock short which he owns, this is termed "short against the box." This locks in a capital gain, however, under 1997 tax law revisions, any gain is taxable at this point. Thus this strategy generally cannot be used to defer taxation of a gain.
The amount of accretion to be reported for tax purposes on an original issue discount bond requires the use of all of the following EXCEPT:
-market value
The premium on market premium corporate and government bonds:
-may be amortized annually
A municipal bond dealer quotes an 8 year 4% bond trading in the secondary market on a 6% basis. After considering all taxes, the customer's yield will be:
-more than 4% but less than 6% -There are two components to the yield earned on a discount security - the coupon rate and the annual earning of the discount. With this bond the customer is earning 4% per year in annual interest plus 2% per year in annual gain (which equals the 6% basis.) The 4% interest earned is not taxable, however, the annual 2% accretion of the discount is taxed at ordinary income tax rates. Therefore, the after tax yield will be more than 4% but less than 6%.
A customer buys $10,000 of a new issue 10 year corporate bond at 92. At maturity, the customer will have:
-no capital gain or loss
A customer buys $100,000 of a new issue 30 year General Obligation bond at 80. At maturity, the customer will have:
-no capital gain or loss -The discount on all original issue discount bonds (corporate, government and municipal) must be accreted over the life of the bond. If the bond is held to maturity, the entire discount has been accreted and the adjusted cost basis is par. Since the bonds are redeemed at par, there is no capital gain or loss at maturity
A customer buys $100,000 of a new issue 30 year U.S. Government bond at 80. At maturity, the customer will have:
-no capital gain or loss -The discount on all original issue discount bonds (corporate, government and municipal) must be accreted over the life of the bond. If the bond is held to maturity, the entire discount has been accreted and the adjusted cost basis is par. Since the bonds are redeemed at par, there is no capital gain or loss at maturity.
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:
-over 1 year
Royalties received from an oil and gas program are:
-passive income
An investor in a limited partnership generating passive losses can offset these against:
-passive income generated from other limited partnership investments -income generated from direct investments in real estate
A municipal bond "tax swap" is the:
-purchase and sale of similar, but not identical bonds, to incur a tax deductible loss for that year
All of the following transactions which result in a loss would be considered a "wash sale" under IRS rules EXCEPT buying a:
-put option on the stock 30 days prior to the sale
A customer sells 1 ABC Jan 50 Call @ $4 when the market price of ABC is $51. The stock then moves to $58 and the customer is exercised. The tax consequence upon exercise is a:
-sale proceeds of $5,400 -If a writer of a call is exercised, he or she is selling the stock. The customer's sale proceeds is the sale price of the stock ($50) plus the premium received ($4) = $54. Notice that this is the same as the breakeven. No taxable event occurs until the stock is bought.
All of the following statements are true regarding the tax treatment of municipal bonds EXCEPT:
-secondary discount bonds must be accreted
"Selling short against the box" is:
-selling stock short (borrowed shares) that the customer owns
