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Use IRS Publication 550 Chapter 3 pages 31-37 to complete this topic.

1. You do not have to complete Form 4952 or attach it to your tax return if

A. Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. 
B. You do not have any other deductible investment expenses.
C. You have no carryover or investment interest expenses from 2007. 
D. All of the above.

2. Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after your get it (other than payments of qualified stated interest).

True False

3. Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income.

True False

4. Investment interest includes qualified home mortgage interest or interest taken into account in computing income or loss from a passive activity.

True False

5. If you use the proceeds of a loan for more than one purpose (for example, personal and business), you

A. Must allocate the interest on the loan to each use.
B. Do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used.
C. Allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated.
D. All of the above.

6. Property held for investment includes property that produces

A. Interest not derived in the ordinary course of a trade or business.
B. Dividends not derived in the ordinary course of a trade or business.
C. Annuities or royalties not derived in the ordinary course of a trade or business.
D. All of the above.

7. If you borrow money to buy property you hold for investment, the interest you pay is investment interest. You can deduct interest you incurred

A. From investing in tax-exempt income.
B. From investing in straddles.
C. From a passive activity.
D. Up to the amount of your net investment income.

8. If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. All of the interest expense is treated as investment interest.

True False

9. How much of the following interest expense is deductible on Schedule A, before limitations?

A. $1,200.
B. $1,900.
C. $4,650.
D. $3,900.

10. If you borrow money to buy property you hold for investment, the interest you pay is investment income. The interest you pay for the investment property per year is limited to your investment income. Any amount that is not used because of a limitation in one year

A. Is simply a benefit that is wasted.
B. Can be carried over to the next year and is treated as investment interest paid or accrued in the next year.
C. Is lost because you can only deduct expenses in the year they were incurred.
D. None of the above.

11. A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. However, if you are involved in renting real estate, the activity is not a passive activity if

A. More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate.
B. You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate.
C. Rental activities are treated as incidental to holding property for investment.
D. Both A and B above.

12. Your deductions for investment expenses may be limited by

A. The at-risk rules or passive activity loss limits.
B. The limit on investment interest.
C. The 2% limit on certain miscellaneous itemized deductions.
D. Any of the above.

13. Investment income includes Alaska Permanent Fund dividends.

True False

14. In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. However, you may need to use a different basis for

A. Convertible bonds.
B. Bonds you got in a trade.
C. Bonds whose basis has to be determined using the basis of the person who transferred the bond to you.
D. Any of the above.

15. To deduct your investment expenses, you must itemize deductions. Enter your deductible investment interest expenses on

A. Schedule E (Form 1040) line 7.
B. Schedule A (Form 1040) line 14.
C. Schedule A (Form 1040) line 23.
D. Schedule B (Form 1040) line 2. 

16.  If you use the cash method to report income and expenses, you generally deduct your investment expenses when your incur a liability for them, rather than when you pay them.

True False

17. Some expenses that you incur as an investor are not deductible. However, you can deduct

A. Transportation and other expenses that you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock.
B. Expenses for attending a convention, seminar, or other similar meeting for investment purposes. 
C. Interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract.
D. None of the above.

18. You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. You must add the fee to the cost of the property.

True False

19. Javier borrowed $12,000 and used $8,000 to buy stock. He used the other $3,000 to buy items for his home. How much of the interest on that debt would be investment interest.

A. 80% of the interest on that debt is investment interest.
B. 20% of the interest on that debt is investment interest.
C. 75% of the interest on that debt is investment interest.
D. 25% of the interest on that debt is investment interest.

20. Special at-risk rules apply to most income-producing activities. These rules 

A. Limit the amount of loss you can deduct to the amount you risk losing in the activity.
B. Do not apply to investment interest activities.
C. Apply only to offset income from passive activities.
D. None of the above.