Property Sales, Basis and Capital Gains
This topic covers basis, holding period, capital gains and losses, residence exclusions, wash sales, installments, nonbusiness bad debts, options, investor versus trader, and sale reporting.
How to study for EA Part 1
Build every answer around taxpayer data, filing status, income category, deduction or credit eligibility, forms, limitations, and reporting consequences.
Core concepts
Concept 1
Property Sales, Basis and Capital Gains questions test whether an enrolled agent candidate can apply individual income tax rules to Form 1040 fact patterns for the tested tax year.
Exam cue: Identify taxpayer, filing status, dependency, tax year, source document, form, and whether the issue is income, deduction, credit, tax, advice, or specialized return.
Concept 2
The best answer usually identifies filing status, taxpayer data, income category, deduction or credit rule, limitation, reporting form, and penalty consequence before calculating.
Exam cue: Check thresholds, phaseouts, basis, holding period, substantiation, due dates, and whether the item is refundable, nonrefundable, taxable, excluded, or deferred.
Concept 3
Eliminate answers that ignore documentation, mix refundable and nonrefundable credits, skip basis, overlook special filing statuses, or use a prior-year rule when current-year facts control.
Exam cue: Tie the result to Form 1040 reporting, schedules, information returns, estimated tax, penalty relief, or future-year planning.
Risk pitfalls and guardrails
Calculating before deciding whether the taxpayer is eligible for the status, deduction, credit, exclusion, or reporting exception.
Guardrail: Use a 15-second safety pause before finalizing your action.
Using general tax intuition instead of the IRS outline's specific individual-return categories.
Guardrail: Use a 15-second safety pause before finalizing your action.
Missing forms, due dates, carryovers, international reporting, estate and gift filing, or spouse relief consequences.
Guardrail: Use a 15-second safety pause before finalizing your action.
Memory anchors
Basis
Basis measures investment in property and is used to compute gain, loss, depreciation, or exclusion effects.
Amount Realized
Amount realized includes money received, fair value of property received, and liabilities relieved.
Capital Gain
Capital gain arises from sale or exchange of a capital asset for more than basis.
Capital Loss
Capital loss arises from sale or exchange of a capital asset for less than basis.
Holding Period
Holding period determines short-term or long-term capital treatment.
Residence Exclusion
The section 121 residence exclusion can exclude gain when ownership and use tests are met.
Wash Sale
A wash sale can disallow a loss when substantially identical securities are bought near the sale.
Installment Sale
An installment sale reports gain as payments are received unless an exception applies.
Nonbusiness Bad Debt
A nonbusiness bad debt is treated as a short-term capital loss when wholly worthless.
Investor Trader
Investor versus trader status affects expense treatment and reporting.
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 taxpayer buys investment land for $180,000 and pays $4,000 of legal and recording fees attributable to acquisition. What is the initial basis?
A homeowner replaces the entire roof of a rental property for $22,000. How is the expenditure generally treated?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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