Ch 7 - Textbook

Question 1

What is investment income?

Answer 1

Income received from portfolio-type investments

Question 2

What does portfolio income include?

Answer 2

Capital gains and losses interest, dividend, annuity, and royalty income not derived in the ordinary course of a trade or business.

Question 3

When computing the deductibility of investment interest expense…

Answer 3

capital gains and dividends subject to the preferential tax rate are not treated as investment income unless the taxpayer elects to have this income taxed at ordinary tax rates.

Question 4

Is it possible for two investments with identical before-tax rates of return to generate different after-tax rates of return?

Answer 4

Yes, because investments are taxed differently.