CPWA Tax Planning Exam Questions with All Correct Answers
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Course
CPWA Tax Planning
Institution
CPWA Tax Planning
CPWA Tax Planning Exam Questions with All Correct Answers
List interest expense classifications and applicable limitations including the treatment of mortgage interest - Answer- Mortgage interest is a below the line deduction when itemizing deductions
Mortgage interest attributable to the firs...
CPWA Tax Planning Exam
Questions with All Correct
Answers
List interest expense classifications and applicable limitations including the treatment of
mortgage interest - Answer- Mortgage interest is a below the line deduction when
itemizing deductions
Mortgage interest attributable to the first $750K of mortgage debt
Primary and secondary home
Mortgages executed AFTER 12/15/17
1M for mortgages executed BEFORE 12/15/17
Not deductible for AMT
List interest expense classifications and applicable limitations including the treatment of
investment interest expense - Answer- Below the line deduction when itemizing
Limited to NIIT
Explain the rules between non qualified and qualified dividends: Common Stock -
Answer- Qualified if the shareholder has held a stock for more than 60 days and the
shares are held during a 121 day period that begins 60 days before the ex-dividend
date
Explain the rules between non qualified and qualified dividends: Preferred Stock -
Answer- Investors must hold preferred stocks for more than 90 days during the 181 day
period that starts 90 days before the ex-dividend date
Explain the rules between non qualified and qualified dividends: Funds - Answer- Same
as common, must be unhedged
Explain wash sale rules - Answer- If you buy a security, sell it, and buy it back within a
30 day period and there is a loss, you do not get to take advantage of the loss.
Define passive income and active income - Answer- Passive income is from an
investment, no material activity in the day to day operations
Active income is actively engaging in the business, material
, Passive business activities: List interest expense classifications and applicable
limitations including the treatment of investment interest on business activities - Answer-
Can deduct losses up to the extent of gains
Must be passive
If at-risk, only deductible up to the amount of cash put down
Subject to NIIT
Seven tests for material participation - Answer- 1) The taxpayer participates in the
activity for more than 500 hours during the year
2) The taxpayer's participation in the activity constitutes substantially all of the
participation by all individuals in the activity, including nonowners
3) The taxpayer's participation is more than 100 hours during the year, and no other
individual, including nonowners, participates more hours than the taxpayer
4) The activity is a significant participation activity (the taxpayer participates more than
100 hours during the year) and the taxpayer's annual participation in all significant
participation activities is more than 500 hours
5) The taxpayer materially participated in the activity for any five tax years during the ten
immediately preceding tax years
6) If the activity is a personal service activity (one in the fields of health, law,
engineering, architecture, accounting, actuarial science, performing arts, consulting, or
any other trade or business in which capital is not a material income producing factor),
the taxpayer materially participated in the activity for any three tax years preceding the
current year.
7) Based on all facts and circumstances, the taxpayer participates on a regular,
continuous, and substantial basis during the year
Identify strategies to defer gains on various property transactions, including like-kind
exchanges and sales of certain small business stock - Answer- 1) Specifically
identifying the security being sold
2) Electing to use one of the average cost methods for selling mutual funds
3) Selling short against the box
4) Buying or selling put and call options
5) Negotiating an installment sale
6) Entering into a like-kind exchange
7) Electing involuntary conversion treatment
8) The use of opportunity zones
Compare the risks and benefits of like-kind exchanges and sales of certain small
business stock - Answer- Like-kind exchanges:
Risks: timeline, receipt of boot, qualifying property, related parties
Benefits: deferral of gain
Small business stock:
Risks: losing money, company growing, timeline, exceeding 10M of gains or 10x the
taxpayers basis
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