P1-U05 · PART 1 · SOURCE CYCLE 2026-2027
Investment Income and Expenses
How to complete this unit
This unit uses 13 source-gated recall cards and 14 admissible practice questions. Complete the sequence in order; the unreleased wiki prose remains outside the learner path.
- 1 · LearnBuild the rule
Answer each recall prompt before opening it. Then learn the exact rule, test the controlling facts through four quick challenges, explore common questions, and finish with one own-words teach-back.
- 2 · ApplyUse it in context
Complete at least 14 mapped questions over two sessions. Review the explanation even when the answer is correct.
- 3 · ProveTest readiness
Use the Part 1 mock under time pressure. Return here for every flagged or missed concept before the next attempt.
Verified recall questions
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here. Stable unit ownership gathers this lesson across 1 textbook collection.
Q1.How are qualified dividends taxed?
They receive the same 0%, 15%, or 20% maximum rates that apply to net capital gain.
Q2.Is interest on a bond used to finance government operations generally taxable?
No. Interest on a bond used to finance government operations is generally not taxable when the bond is issued by a state, D.C., a U.S. territory, or their political subdivisions.
Q3.Recall the rule for this EA objective in Income And Assets: Constructive dividends (e.g., payments of personal expenses from a business entity)
As a distribution to the shareholder
Q4.What interest is generally taxable to an individual?
interest on bank deposits, bonds, and similar obligations is generally taxable interest on most state and local bonds may be tax-exempt nominee interest received for another person is generally not the nominee's income
Q5.What are qualified dividends?
dividends that meet holding-period and payer requirements and are eligible for the preferential long-term capital-gain tax rates ordinary dividends that fail those requirements are taxed as ordinary income Form 1099-DIV generally identifies the qualified portion
Q6.How is original issue discount generally reported?
OID is generally treated as accrued interest income over the life of the debt instrument the holder includes OID each year even if no cash interest is received de minimis OID may be ignored under the applicable threshold rules
Q7.What is nominee interest or dividend reporting?
amounts received as a nominee for another person are generally not the nominee's income the nominee reports the amount and issues a nominee Form 1099 to the true owner only the owner's share remains taxable to the owner
Q8.Which of the following should be reported as interest income, not dividend income, on a taxpayer's return?
Dividends earned on deposits in credit unions.
Q9.Araceli received $500 of interest from municipal bonds issued by the state of New Jersey. How should she report this on her Form 1040?
It must be reported on her tax return, but it is not taxable income.
Q10.Bastien received a Form 1099-DIV from his brokerage firm, showing that he earned $1,200 of ordinary dividends. He received no other investment income during the year. How should this income be handled on Bastien's tax return?
He can report the dividend income on page one of his Form 1040, taxable as ordinary income.
Q11.Miguel deposited $4,000 of his own funds and also borrowed $12,000 from the bank to buy a nine-month certificate of deposit for $16,000. The certificate earned $375 at maturity in 2025, and Miguel received $175, which represented the $375 he earned minus $200 of interest charged on the $12,000 loan. The bank gives Miguel a Form 1099-INT showing the $375 interest he earned. The bank also issues him a statement showing that he paid $200 in interest. How should Miguel report these amounts on his tax return?
He should report $375 of interest income and can deduct $200 on his Schedule A (if taking itemized deductions), subject to the net investment income limit.
Q12.Nondividend distributions are:
Usually considered a return of capital, but potentially capital gain income.
Q13.Six years ago, Derrick bought a U.S. Series EE savings bond and decided to report the interest earned each year until maturity. This year, he bought another Series EE savings bond. How should Derrick report the interest on this new bond?
He must report the interest earned each year until maturity.
Ready to move on?
- ▸ Explain at least 80% of these 13 rules without opening the answer, twice on different days.
- ▸ Score 80% across 14 or more mapped questions over two sessions, not one memorized round.
- ▸ Complete a timed Part 1 mock and return to this unit if its concepts remain flagged or missed.
Use these checks to choose your next study action. They do not predict a PSI scaled score.