Series 7: Exercise

Exercise

Answer true or false.

1. 1. _____ The benefit to an investor of a tax credit is that it reduces taxable income and, therefore, reduces taxes due.

Answer the following questions.

1. 2. Which of the following does the IRS consider to be passive income?
2. A. Rent payments from a tenant
3. B. Long-term capital gains from sale of a primary residence
4. C. Dividends from stock held less than one year
5. D. Payments by your employer into your 401(k) account
6. 3. Tax benefits of investing in a DPP include all except:
7. A. Depreciation and depletion expense allowances
8. B. Credits for investing in Section 8 housing
9. C. Depreciation recapture
10. D. Losses can be used to offset passive income
11. 4. Marian earned $30,000 last year. She had a tax rate of 30%, a deduction of $2,000, and a tax credit of $1,500. Using only these assumptions, what is her tax due?
12. A. $5,500
13. B. $6,550
14. C. $6,900
15. D. $8,500

Answers

1. 1. False. A tax credit is subtracted from the amount of tax due, not the taxable income. So it reduces the amount of tax due more than a deduction of the same amount.
2. 2. A. The IRS considers only rent