Basis, Gain, Loss and Dispositions
This topic covers adjusted basis, amount realized, realized gain or loss, recognized gain or loss, capital assets, holding periods, character, and loss limitations.
How to study for CPA REG
Build every answer around taxpayer type, tax year, filing obligation, basis, character, limitation, and procedural consequence.
Core concepts
Concept 1
Basis, Gain, Loss and Dispositions questions test whether a CPA candidate can apply tax law, federal procedure, business law, or entity tax rules to a practical client fact pattern.
Exam cue: Identify the taxpayer type, tax year, transaction, return, authority, and dollar amount or deadline being tested.
Concept 2
The best REG answer usually identifies the taxpayer, transaction, year, tax basis, filing obligation, limitation, and procedural consequence before calculating.
Exam cue: Decide whether the task is inclusion, deduction, credit, basis, gain or loss, filing, penalty, representation, or legal liability.
Concept 3
Eliminate answers that skip statutory requirements, mix individual and entity rules, ignore basis, overlook filing deadlines, or choose a tax result without checking limitations.
Exam cue: Check limitations, character, timing, basis ordering, related-party rules, and whether the amount belongs on an individual or entity return.
Risk pitfalls and guardrails
Calculating taxable income before separating exclusions, adjustments, deductions, credits, and separately stated items.
Guardrail: Use a 15-second safety pause before finalizing your action.
Applying entity-level tax rules to owners, or owner-level limitations to the entity itself.
Guardrail: Use a 15-second safety pause before finalizing your action.
Ignoring statute of limitations, preparer penalty, Circular 230, estimated tax, or filing-status details that control the answer.
Guardrail: Use a 15-second safety pause before finalizing your action.
Memory anchors
Adjusted Basis
Adjusted basis starts with cost or other basis and changes for capital improvements, depreciation, and other adjustments.
Amount Realized
Amount realized includes cash, fair value of property received, and liabilities relieved.
Realized Gain
Realized gain equals amount realized minus adjusted basis.
Recognized Gain
Recognized gain is the portion of realized gain included in taxable income.
Capital Asset
A capital asset is property held by the taxpayer unless specifically excluded by statute.
Holding Period
Holding period determines whether capital gain or loss is short-term or long-term.
Character
Character determines whether gain or loss is ordinary, capital, section 1231, or another category.
Personal Loss
Loss on sale of personal-use property is generally not deductible.
Wash Sale
A wash sale can disallow loss when substantially identical securities are acquired near the sale date.
Related Party
Related-party rules can defer or disallow losses and affect character.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A business buys equipment for $80,000, pays $4,000 sales tax and $3,000 freight, and spends $2,000 on routine maintenance after it is placed in service. What is the equipment's initial tax basis?
A taxpayer buys land for $200,000 and a building for $300,000 in one transaction. The appraisal values the land at $250,000 and building at $750,000. How much cost is allocated to land?
Answer all questions to submit.
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