Investment Analysis Flashcards

A client in the 35% federal bracket compares a 3.9% municipal bond with a taxable corporate bond. What is the municipal bond's approximate tax-equivalent yield?

Answer: 6.00%

Tax-equivalent yield = 3.9% / (1 − 0.35) = 6.00%.

An investor sells stock at a loss on December 10 and buys substantially identical shares on January 5. What is the tax result?

Answer: The loss is disallowed and added to the basis of the new shares

A repurchase within 30 days after the sale triggers the wash sale rule, deferring the loss into the replacement shares' basis.

Which holding requirement must common stock meet for its dividends to be taxed as qualified dividends?

Answer: Held more than 60 days during the 121-day period beginning 60 days before the ex-dividend date

Qualified dividend treatment on common stock requires holding more than 60 days within the 121-day window around the ex-dividend date.

A single filer has $260,000 of MAGI, including $80,000 of net investment income. How much income is subject to the 3.8% Net Investment Income Tax?

Answer: $60,000

NIIT applies to the lesser of NII ($80,000) or MAGI above the $200,000 single threshold ($60,000).

What is the maximum net capital loss a married couple filing jointly can deduct against ordinary income in one year?

Answer: $3,000

Net capital losses offset up to $3,000 of ordinary income per year ($1,500 if married filing separately), with the excess carried forward.

Long-term gains on the sale of collectibles such as gold coins are taxed at a maximum federal rate of:

Answer: 28%

Collectibles gain is subject to a maximum 28% rate rather than the standard 20% long-term rate.

Which asset-location strategy generally improves after-tax returns?

Answer: Hold taxable bonds in tax-deferred accounts and tax-efficient index funds in taxable accounts

Placing ordinary-income-generating assets in deferred accounts shields that income while tax-efficient equities benefit from low capital gains rates in taxable accounts.