Portfolio Management & Strategy Flashcards

A client donates appreciated stock held more than one year to a public charity. What is the maximum charitable deduction as a percentage of AGI?

Answer: 30%

Donations of long-term capital gain property to public charities are generally deductible at fair market value but limited to 30% of AGI, with a 5-year carryforward for excess.

Under the portfolio interest exemption, foreign investors can receive U.S.-source interest income free of U.S. withholding tax if the debt obligation meets which key requirement?

Answer: The bond is registered (not in bearer form) and the investor is not a 10% shareholder

The portfolio interest exemption under IRC §881(c) requires the obligation to be in registered form and the foreign investor must not own 10% or more of the issuer's voting stock.

A tax-sensitive equity strategy called 'direct indexing' offers which primary advantage over holding an index ETF?

Answer: The ability to harvest losses on individual stocks within the index

Direct indexing holds individual index constituents, enabling tax-loss harvesting on specific stocks that decline even when the overall index rises — impossible inside an ETF wrapper.

A client's traditional IRA holds highly appreciated employer stock. The net unrealized appreciation (NUA) strategy recommends distributing the stock in-kind to take advantage of which tax benefit?

Answer: The NUA is taxed as long-term capital gain rather than ordinary income when the stock is eventually sold

Under the NUA rules, only the cost basis in the plan is taxed as ordinary income at distribution; the net unrealized appreciation is taxed at favorable long-term capital gains rates when sold.

Which measure is used to evaluate a portfolio manager's after-tax performance relative to a benchmark, accounting for the tax impact of distributions and trading?

Answer: After-tax alpha

After-tax alpha measures the excess after-tax return generated by a manager above the after-tax benchmark return, isolating the value added by both investment decisions and tax management.

A taxpayer's net capital loss for the year is $8,000. Under current law, how much may be deducted against ordinary income in the current year, and what happens to the remainder?

Answer: $3,000 deductible currently; $5,000 carried forward indefinitely

IRC §1211(b) limits the annual capital loss deduction against ordinary income to $3,000; the unused $5,000 is carried forward indefinitely to future tax years.

In portfolio strategy, 'tax-efficient withdrawal sequencing' in retirement typically recommends withdrawing from accounts in which order?

Answer: Taxable accounts first, then traditional IRA/401(k), then Roth IRA

The conventional sequence — taxable first, then tax-deferred, then Roth last — preserves tax-free Roth growth longest and allows tax-deferred accounts to compound before mandatory draws.