LLQP Life Insurance · Component 1.1 · 35% of the exam
Which of the following is generally exempt from capital gains tax on the deemed disposition at death?
- The client's principal residence, which is exempt under the principal residence rules
- BShares of a public company, since publicly traded securities pass to heirs at their original cost
- CA cottage used only in summer, since seasonal properties are treated as personal-use property
- DA rental property, since real estate held for income is exempt from the deemed disposition
Correct answer: A) The client's principal residence, which is exempt under the principal residence rules
The principal residence exemption shelters the gain on the home that qualifies. A cottage may qualify only if designated as the principal residence, which then exposes the other property. Rental property and public shares are fully taxable on the deemed disposition.
Why the other options are wrong
- BPublic company shares are taxable.
- CA cottage is taxable unless designated as the principal residence instead of the home.
- DRental property is taxable on the deemed disposition.
Exam tip
One principal residence exemption per family unit per year. The other property's gain is a liquidity need at death.
Common mistake
Assuming both the home and the cottage are exempt.
What this tests
CISRO competency component 1.1 — Assess the client's needs and situation — which is weighted at 35% of the Life Insurance module. Written against the published curriculum.
More from component 1
- A client's existing policies were all sold by another agent who has left the business. The reviewing agent should:
- A client supports an adult child with a permanent disability who will never be self-sufficient. In the needs analysis this is:
- A self-employed client's income fluctuates widely year to year. When determining the income to replace, the agent should:
- A 58-year-old client plans to retire at 65 and has a pension that will pay a survivor benefit. How does time to retirement affect the life insurance need?
- Which of the following is a capital expense arising at death, rather than an ongoing income need?
- A client is the sole income earner in a household with a stay-at-home spouse and two young children. The greatest risk that life insurance on the client addresses is:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.