Can someone explain how D is correct, and also where would I find this stuff in the notes? ==== Taxes on unrealized capital gains: A) must be paid when the appreciated assets are passed on to heirs. B) are higher than tax rates on realized capital gains. C) are subject to the alternative minimum tax. D) can be deferred indefinitely. Your answer: A was incorrect. The correct answer was D) can be deferred indefinitely. The investment plan may be complicated by the tax code (tax concerns are an investment constraint).Interest and dividends are taxed at the investor’s marginal tax rate while capital gains are taxed differently. Taxes on unrealized capital gains can be deferred indefinitely. Estate taxes must be considered. There is a trade off between taxes and diversification needs. The decision to sell some stock to diversify ones portfolio by reinvesting the proceeds in other assets must be balanced against the resulting tax liability. Another tax factor is that some sources of income are exempt from federal and state taxes. High-income individuals have an incentive to purchase municipal bonds to reduce their tax liabilities. The investor must also consider tax deferred investment opportunities such as IRAs, 401(k) and 403(b) plans, and various life insurance contracts.
if you never sell a stock, you never have to pay taxes on it.
makes sense…):, I was probably over analyzing…thx
In fact, if estate taxes are not involved because the estate is too small the capital gains taxes are not deferred by inheritance, they are eliminated by a step up in basis. Is this really L1 stuff though? This looks a lot like an LIII question,
And a US specific one… I thought the CFA had some pretentions of being international now.