Taxes:

Corporate investors may exclude 70% of dividends received (both common and preferred) from taxation. Interest income received is 100% taxable (unless it is tax free municipal interest income).

A corporate investor may exclude from taxation, part of:

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 Friday, December 31st (payable date), therefore the income is taxable as of this date.

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:

$5,000 of taxable interest income So if you choose not to accrete then you will have a taxable interest income

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:

The expiration of the call contracts results in a short term capital gain to the writer of $500, taxable in that year. The cost basis of the stock position is unaffected at $43 per share, for a total cost basis for 100 shares of $4,300. 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 and deferring taxation to the time when the stock is sold.

A customer buys 100 shares of XYZ stock at $43 per share. The customer then sells 1 XYZ $45 Call contract for a premium of $500. The call contract expires unexercised. After expiration, the customer's cost basis in the XYZ shares is:

The expiration of the call contracts results in a short term capital gain to the writer of $1,500, taxable in the year of expiration. The cost basis of the stock position is unaffected at $60 per share, for a total cost basis for 200 shares of $12,000. 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.

A customer buys 200 shares of PDQ stock at $60 per share. The customer then sells 3 PDQ Call contracts for total premiums of $1,500. The call contracts expire unexercised. After expiration, the customer's cost basis in the PDQ shares is:

Normally, financing for which investors are not at risk (non-recourse financing), is excluded from the basis. However, real estate programs are exempt from the at risk rule. Thus, the $20,000 cash contribution and the $20,000 non-recourse note are included in the beginning basis for a real estate program.

A customer buys a real estate limited partnership interest by contributing $20,000 and signing a $20,000 non-recourse note. The customer's tax basis is:

0, if there is no passive losses there can be no reduction for a year! WOW!

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:

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 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?

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.

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:

when one spouse dies it doesn't affect the estate, it is excluded until both die

A married couple has a combined net worth of $7,000,000. If one dies in 2016, the taxable amount of the estate to the surviving spouse is:

0% tax deductible, Because municipal interest income is not taxable by the Federal government, all expenses associated with keeping municipal bonds are not tax deductible.

All expenses associated with holding municipal bonds are:

principal repayments of secured debt

All of the following items are included as deductible passive losses on the income tax returns of limited partnership investors EXCEPT:

Wholesalers

An "unmanaged" direct participation program is sold to investors by the:

The best answer is A. 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.

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:

more than 8% but less than 10%

An investor buys an 8% municipal bond in the secondary market on a 10% basis. The investor does not accrete the bond discount annually. If the bond is held to maturity, after considering taxes to be paid, the investor's yield will be:

Under the Tax Code, passive losses can only be offset against passive income. They cannot be offset against portfolio income (interest, dividends, capital gains) or earned income. Passive income and loss is defined as that derived from real estate investments and limited partnership interests.

An investor in a limited partnership generating passive losses can offset these against:

DATED DATE

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:

YTM on a bond

Basis=

$3000

Defections allowed per year?? Anymore this amount must be carried forward.

$54,000 cost basis in ABC; $6,000 cost basis in DEF (oringal cost basis is the price you payed for it, it has nothing to with the increase in value).

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:

-Capital gains from selling municipal bonds are fully taxable -Interest income received from municipal bonds is taxable only on the State and Local levels

Generally, which of the following statements are TRUE regarding the taxation of a municipal security?

-The investor gets to deduct the fair market value of the security as a donation -The investor has no tax liability on the appreciation

If a security was held for more than one year and it is donated to a charity by the investor, which of the following statements are TRUE about the tax consequence of the event?

NONE>

If no income is received for the year, how much reductions can you takee in losses?

0, There is no gift tax due, because the unlimited marital exclusion applies to both gifts and estates.

In 2016, a husband gives a $100,000 gift to his spouse. How much of the gift is subject to gift tax?

There is an unlimited marital exclusion from estate and gift tax. An interesting note for the unlimited exclusion - both spouses must be U.S. citizens. If one of the spouses is a non-U.S. citizen, then the exclusion is not allowed.

In 2016, what is the maximum gift that a wife can be given by her U.S. born husband without incurring gift tax liability?

The general partner takes a percentage from the first barrel of oil produced, without regard to costs

In an oil and gas program which has an overriding royalty interest arrangement, which statement is TRUE?

Municipal Bonds

Interest income from all of the following securities is fully taxable by Federal, State, and Local government EXCEPT:

Federal National Mortgage Association issues

Interest income from which of the following is SUBJECT to state and local taxes?

The interest income from non-essential private use municipal bond issues is included as a "tax preference" item in the Alternative Minimum Tax. Both School District Bonds and Public Housing bonds are considered to be "essential public uses" and are NOT subject to AMT. Industrial Revenue Bond issues are used to finance construction of plants for corporate lessors and are "private use." Redevelopment bond issues are used to finance rehabilitation of plant and offices, typically for corporate use, and also are considered to be "private purpose."

Interest income from which of the following municipal issues would NOT be included as a tax preference item in the Alternative Minimum Tax computation?

SO use the costs, not the amount that the value grows to over the years. So 31,300+11,300=42600/1300shares=32.77 answer

Over the last 5 years, a client has bought 200 shares of XYZ Mutual Fund each year in a taxable account and has elected to have dividends and capital gains automatically reinvested in additional fund shares. The aggregate cost of the 1,000 purchased shares is $31,300. In addition, over these 5 years, the customer has bought 300 additional shares through dividend reinvestment at an aggregate cost of $11,300. At the end of the 5th year, the client's statement shows that the customer owns 1,300 shares at an aggregate market value of $49,600. If the client redeems 100 of the shares, the average cost basis per share is:

Distributive share of income from a real estate limited partnership investment

Passive income and loss is defined as that derived from real estate investments and limited partnership investments.

passive income

Royalties received from an oil and gas program are:

Buying a put or a call wipes out the holding period for tax consequences!

TAX CONSEQUENCES

Corporate & Government Bonds (not Munis)

The manager of a pension plan would invest in?

Stock Dividends & Stock Splits

What are not taxable to recipient?

Cash dividend & Product Dividends

What are taxable to recipient?

The proceeds received by a corporation from issuing debt or stock are not taxable.

What is not considered taxable income?

-additional contributions of cash -assumption of additional debt -distributive share of partnership income (increases the investment value)

What will increase tax basis in the year?

-increases cost basis, but the gain from selling the bond goes down

When accreting a bond discount, which of the following statements are TRUE?

-selling existing bonds at a loss -the proceeds from the sale to buy similar, but not identical bonds

When performing a municipal bond tax swap, the investor is:

the same interest income is reported each year

When using straight line amortization on premium bonds:

Advantages of limited partnership investments include professional management (by the general partner); limited liability (limited to the cash investment, plus any recourse financing); and flow-though of gain and loss. Diversification if investments is not a benefit of a limited partnership, since each partnership usually invests in a single asset (e.g., an office building, an apartment complex, an oil well, etc.)

Which of the following are advantages of purchasing a Direct Participation Program?

-Dividends received from domestic investments -Interest received from foreign investments -Gain on the sale of a capital asset

Which of the following are included in the taxable income of a corporation?

-The general partner either manages or appoints a manager for the program -The general partner decides which properties to buy and sell -The general partner is considered to be the key executive in the partnership

Which of the following statements are TRUE about general partners?

Corporate and Government bonds are treated in the same way for capital gain or loss computations. If a corporate or Government bond is issued at a premium or if the bond is purchased at a premium in the secondary market, the holder has the option of amortizing the premium over the bond's life. The bondholder doesn't have to amortize the premium, but it is in his best interest to do so because amortizing the premium reduces reported taxable interest income each year. Corporate & Govt MAY BE AMORTIZED

Which statements are TRUE about amortization of U.S. Government bond premiums?

Secured Creditors, then general creditors, then limited partners, & finally General Partners.

Who is paid first when a partnership is dissolved?