Portfolio Management Flashcards

A client sells a stock at a loss on December 10 and buys the same stock in her IRA on December 20. What is the tax result?

Answer: The loss is disallowed and permanently lost because basis cannot be added to the IRA

Under Rev. Rul. 2008-5, an IRA repurchase triggers the wash sale rule and the disallowed loss cannot be added to IRA basis, so it is permanently lost.

What is the total window during which a repurchase of substantially identical securities triggers the wash sale rule?

Answer: 61 days: 30 days before, the sale date, and 30 days after

IRC §1091 covers purchases made 30 days before through 30 days after the loss sale, a 61-day window.

A married couple filing jointly has $20,000 of net capital losses this year and no gains. How much can offset ordinary income this 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 rest carried forward.

Which asset is generally best placed in a taxable brokerage account under an asset-location strategy?

Answer: Broad-market equity index ETF

Tax-efficient index ETFs generate mostly qualified dividends and few capital gain distributions, making them suitable for taxable accounts.

What is the maximum federal capital gains rate on long-term gains from the sale of collectibles such as gold coins?

Answer: 28%

Long-term gains on collectibles are taxed at a maximum rate of 28%.

A single filer has modified AGI of $260,000, including $50,000 of net investment income. On how much is the 3.8% Net Investment Income Tax imposed?

Answer: $50,000

NIIT applies to the lesser of net investment income ($50,000) or MAGI above the $200,000 single threshold ($60,000).

A muni bond yields 3.5% and the client is in the 35% federal bracket. What is the approximate taxable-equivalent yield?

Answer: 5.38%

Taxable-equivalent yield equals 3.5% divided by (1 − 0.35), or about 5.38%.