WMS Tax Planning & Strategies 3

Question 1

What is a Charitable Remainder Trust (CRT) and what is its primary tax planning benefit?

Accepted Answer

A trust that pays an income stream to beneficiaries for a period, then distributes remaining assets to charity, with an immediate partial charitable deduction

Answer

A CRT provides an income stream to the donor or named beneficiaries for a specified period, with remaining assets passing to charity; the donor receives an immediate income tax deduction equal to the present value of the charitable remainder interest.

Question 2

Which best describes the 'kiddie tax' rule and its relevance to wealth management planning?

Accepted Answer

Unearned income of children under age 19 (or full-time students under 24) above a threshold is taxed at the parent's marginal rate

Answer

The kiddie tax taxes a child's net unearned income above a threshold at the parent's marginal rate, effectively blocking high-income clients from using their minor children to shelter investment income in lower tax brackets.

Question 3

What tax incentive does a Qualified Opportunity Zone (QOZ) fund investment provide to a client with a large capital gain?

Accepted Answer

Deferral of reinvested capital gains plus potential exclusion of QOZ fund appreciation if held for at least 10 years

Answer

QOZ investments allow investors to defer capital gains by rolling proceeds into a Qualified Opportunity Fund; if the QOZ investment is held for at least 10 years, appreciation on the fund itself may be excluded from taxable income.

Question 4

Which statement most accurately describes how the Tax Cuts and Jobs Act (TCJA) changed itemized deductions for high-income taxpayers?

Accepted Answer

The TCJA eliminated the Pease limitation phase-down and suspended personal exemptions, while capping the SALT deduction at $10,000

Answer

The TCJA eliminated the Pease limitation that previously phased out itemized deductions for high earners, suspended personal exemptions, and capped the state and local tax (SALT) deduction at $10,000.

Question 5

A client sells a rental property at a gain. Which portion of the gain is subject to the unrecaptured Section 1250 depreciation tax rate of 25%?

Accepted Answer

Only the portion of gain attributable to previously claimed depreciation deductions on the property

Answer

Unrecaptured Section 1250 depreciation — the gain attributable to prior depreciation deductions taken on real property — is taxed at a maximum federal rate of 25%, separate from the general long-term capital gains rate.

(WMS) Wealth Management Specialist Certification Practice Test

(WMS) Wealth Management Specialist Certification Practice Test

WMS Tax Planning & Strategies 3