Duane's level of coverage satisfies the coinsurance requirement, and fire is a covered peril under an HO-3 policy, but the policy will not pay more than the policy limit ($320,000) minus the deductible. Because the coinsurance requirement is satisfied, the insurer's responsibility for the loss is $349,500 ($350,000 - $500), subject to the policy limit of $320,000. Because Duane is responsible for $30,000 of the loss, the deductible is assumed to be part of the $30,000.
Martha, a single woman, had the following stock transactions during 2019:
1. Sold 500 shares of ABC stock, for $7,500 on June 1, 2019. The stock was originally purchased on January 1, 2019, for $4,500.
2. Purchased 250 shares of ABC stock, on June 15, 2019, for $8 per share.
3. Sold 10,000 shares of XYZ stock (Section 1244 stock) for $160,000 on September 1, 2019. The stock was originally purchased for $250,000 on December 15, 2013.
4. Sold 1000 shares of LFM stock on June 1, 2019, for $14,000. The stock was a gift from her aunt on March 1, 2019. Her aunt's basis was $6,000 and the fair market value on the aunt's date of the gift was $13,000. Her aunt acquired the stock on April 1, 2015.
5. Shares of EAJ stock became worthless on September 1, 2019. Martha originally purchased the stock on October 1, 2018, for $10,000.
6. On July 15, 2019, Martha sold all 400 shares of her CPM stock for $6,000. Martha had received the CPM stock on December 31, 2018, in a like-exchange for 600 shares of JEM stock (JEM stock's FMV on date of exchange was $7,400, the same as her basis in the stock).
After Martha's CFP® professional, Robert, analyzes her situation, what should he tell Martha about her net long-term capital loss for the current year before netting any short-term gains or losses?
Martha has a $42,000 LTCL.
($40,000) LTCL (Transaction #3)
8,000 LTCG (Transaction #4)
(10,000) LTCL (Transaction #5)
=$42,000 Net LTCL
Regarding Transaction #3, Martha's $90,000 loss on the Section 1244 stock is apportioned as a $50,000 ordinary loss and a $40,000 long-term capital loss.
Regarding Transaction #4, Martha's basis in the gifted stock is the aunt's carryover basis ($6,000). Martha has a long-term capital gain of $8,000 on the transaction ($14,000 − $6,000).
Regarding Transaction #5, worthless securities are deemed to have become worthless on the last day of the year; in this case, December 31, 2019. Therefore, Martha will have a long-term capital loss of $10,000.
Wolfgram Partners is a small business owned by partners Vince, age 65, and his neighbor, Joe, age 45. Vince founded the company 25 years ago and brought in Joe as a partner 10 years ago, with the plan of Joe one day taking over the business. In addition to Vince and Joe, there are two other employees, Tom, age 25, and Karen, age 30. The business sponsors a SEP plan and contributes the maximum amount to the plan each year. Considering the following compensation schedule for the current year, what is the aggregate maximum SEP contribution you advise Wolfgram Partners the company can make this year to the SEP plan?
Kevin, an astute investor, has not been pleased with the returns on his investment portfolio. His portfolio consists of 20 stocks, 5 bonds, 2 ETFs, and 4 mutual funds totaling in excess of $1,000,000. He has engaged, Harry, a CFP® professional, to help him with reallocating his portfolio and making recommendations for additional investments. Harry has only been a financial planner for a few years and has been specializing in estate planning. He believes his knowledge of portfolio management may not be suitable for Kevin. Which of the following should be addressed in the initial meeting?
1. Harry must disclose to Kevin that he may receive compensation based on his recommendations.
2. Harry should provide to Kevin a printed letter of engagement detailing his firm's level of service.
3. Harry should disclose his lack of experience in portfolio management.
4. Harry must disengage from the relationship and provide Kevin with a referral to more experienced investment advisor.
Magda will owe gift tax on the gift to the trust because the trust is irrevocable. Because the trust will distribute $100,000 annually to the two beneficiaries, the gift is a gift of a present interest qualifying for the annual exclusion ($15,000 in 2019). Use the Estate and Gift Tax Rate Schedule to calculate the gift tax due.
$12,000,000 - annual exclusion x2 = $11,970,000
$11,970,000 - exclusion of $11,400,000 = $570,000
$570,000 x tax rate .4 = $228,000