CPA Tcp Quiz: Apply Capital Gain And Loss Rules

What this quiz covers

This quiz focuses on Apply Capital Gain And Loss Rules, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Tcp.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. Net capital loss of $6,900; deductible $3,000 with a $3,900 capital loss carryforward. (correct answer)
2. Net capital loss of $9,400; deductible $9,400 against ordinary income in 2025.
3. Net capital gain of $2,500 because long-term losses cannot offset short-term gains.
4. Net capital loss of $6,900; deductible $6,900 in 2025 because the loss is long-term.

Explanation: This question tests capital loss netting and the annual deduction limitation under IRC Section 1211(b). Daniel's $2,500 short-term gain is netted against his $9,400 long-term loss, resulting in a net capital loss of $6,900. Individual taxpayers can deduct only $3,000 of net capital losses against ordinary income per year, with the remaining $3,900 carried forward to future years. Option B incorrectly allows the full loss deduction in the current year. Option C incorrectly prohibits netting between short-term gains and long-term losses. Option D incorrectly allows the full $6,900 deduction based on the loss being long-term, when the $3,000 limit applies regardless of character. Remember the $3,000 annual limit ($1,500 for married filing separately) applies to net capital losses after all netting is complete.

Question 2

1. Report a $9,000 long-term capital loss on Schedule D because wash sale rules apply only to short-term holdings.
2. Disallow the $9,000 loss currently and add the disallowed loss to the basis of the replacement shares; report the sale on Form 8949/Schedule D with wash sale adjustment. (correct answer)
3. Disallow the loss currently and carry it forward as a capital loss carryover without adjusting the basis of the replacement shares.
4. Recognize the $9,000 loss currently because the repurchase occurred after the sale date, not before it.

Explanation: This question tests the wash sale rule under IRC Section 1091. When Aisha sells Stock Z at a loss and repurchases substantially identical securities within 30 days after the sale, the $9,000 loss is disallowed currently. The disallowed loss is added to the basis of the replacement shares, preserving the economic loss for future recognition. She must report the sale on Form 8949 with code 'W' and show the wash sale adjustment on Schedule D. Option A incorrectly suggests wash sales apply only to short-term holdings, when they apply regardless of holding period. Option C incorrectly treats the loss as a carryover without basis adjustment. Option D misunderstands the 61-day wash sale window (30 days before through 30 days after). When triggering wash sales, track basis adjustments carefully to ensure the economic loss is preserved in the replacement shares.

Question 3

1. The Delta Corp shares qualify for long-term treatment because they were held for 12 months.
2. The Delta Corp shares qualify for long-term treatment because they were held for more than one year, excluding the purchase date. (correct answer)
3. The Delta Corp shares qualify for short-term treatment because they were held exactly one year.
4. The Delta Corp shares qualify for short-term treatment because the holding period begins on the sale date.

Explanation: This question tests the precise holding period calculation rules under IRC Section 1223. The holding period begins the day after purchase and includes the sale date, so shares bought August 16, 2024 and sold August 15, 2025 were held from August 17, 2024 through August 15, 2025. This equals exactly 364 days, which is more than one year when counting the endpoints correctly, qualifying for long-term treatment. Option A incorrectly counts only 12 months without proper day counting. Option C incorrectly concludes the shares were held exactly one year and treats this as short-term. Option D incorrectly states the holding period begins on the sale date rather than the day after purchase. For holding period calculations, always count from the day after acquisition through and including the disposition date to determine if the more-than-one-year requirement is met.

Question 4

1. $2,000 long-term capital gain. (correct answer)
2. $5,000 short-term capital gain.
3. $7,000 long-term capital loss.
4. $2,000 short-term capital gain because the asset was sold within one year of inheritance.

Explanation: This question tests the basis and holding period rules for inherited property under IRC Sections 1014 and 1223(9). Henry receives a stepped-down basis equal to the fair market value at date of death ($23,000), which is lower than his aunt's original basis. His gain is $25,000 - $23,000 = $2,000, and it receives automatic long-term treatment regardless of Henry's actual holding period. Option B incorrectly characterizes the gain as short-term based on Henry's holding period. Option C shows the correct gain amount but incorrectly states it would be a loss. Option D makes both errors regarding amount and character. For inherited property, always use date-of-death value as basis (whether stepped up or down) and treat any gain or loss as long-term.

Question 5

1. Net capital gain of $0 because the $4,000 loss is allowed and fully offsets the $6,000 gain, and the remaining $2,000 gain is eliminated by wash sale rules.
2. Net capital gain of $2,000 long-term because the $4,000 loss is disallowed as a wash sale and cannot offset the $6,000 gain in 2025. (correct answer)
3. Net capital gain of $6,000 long-term because wash sales convert losses into gains.
4. Net capital loss of $3,000 because the wash sale loss is deductible up to the annual limit.

Explanation: This question tests the wash sale rule's impact on capital gain calculations under IRC Section 1091. Brian's $4,000 loss on Stock Q is disallowed because he repurchased substantially identical stock within 30 days. Without this loss to offset his other gains, his net capital gain for 2025 is the full $6,000 long-term gain from the other transaction. Option A incorrectly allows the wash sale loss to offset gains. Option C incorrectly suggests wash sales convert losses to gains. Option D incorrectly applies the $3,000 annual loss deduction limit to a disallowed wash sale loss. The wash sale rule prevents taxpayers from claiming losses while maintaining their investment position, requiring careful planning around the 61-day window.

Question 6

1. Report only the $11,000 long-term capital gain on Schedule D; short-term losses are ignored when long-term gains exist.
2. Net the $4,000 short-term loss against the $11,000 long-term gain and report a $7,000 net long-term capital gain on Schedule D. (correct answer)
3. Deduct the $4,000 short-term loss against ordinary income and separately report the $11,000 long-term gain on Schedule D.
4. Report a $15,000 long-term capital gain on Schedule D because losses increase the amount of gain reported for rate purposes.

Explanation: This question tests the proper reporting of netted capital gains and losses on Schedule D. Natalie must net her $11,000 long-term gain against her $4,000 short-term loss, resulting in a $7,000 net long-term capital gain to report on Schedule D. The netting is required before reporting the final result. Option A incorrectly suggests short-term losses are ignored when long-term gains exist. Option C incorrectly allows the loss as an ordinary deduction while separately reporting the gain. Option D suggests an absurd calculation where losses increase reported gains. Proper Schedule D reporting requires complete netting of all capital gains and losses before determining the final reportable amounts by character.

Question 7

1. Report both gains as long-term on Schedule D because both were held during two calendar years.
2. Report the Stock R gain as short-term and the Stock S gain as long-term on Form 8949 and Schedule D. (correct answer)
3. Report both gains as short-term because stocks are ordinary income property unless held at least 2 years.
4. Report only the net $20,000 gain on Form 1040 and do not use Schedule D because there are no losses.

Explanation: This question tests the proper characterization and reporting of capital gains based on holding period. Marcus must report the Stock R gain as short-term (held 11 months) and the Stock S gain as long-term (held 13 months) on Form 8949 with appropriate boxes checked, flowing to Schedule D. Each transaction maintains its character based on its individual holding period. Option A incorrectly treats both as long-term based on calendar years rather than the one-year requirement. Option C incorrectly states stocks need a 2-year holding period for capital treatment. Option D incorrectly suggests Schedule D is not required when there are no losses. Proper tax reporting requires accurate characterization of each transaction based on its specific holding period, regardless of other transactions.

Question 8

1. Donate the appreciated stock and generally claim a charitable contribution deduction equal to fair market value, subject to the applicable percentage limitation for capital gain property to public charities. (correct answer)
2. Sell the stock, recognize the $12,000 long-term capital gain, and then donate the cash; this always produces a larger tax benefit than donating the stock directly.
3. Donate the stock but limit the deduction to the $8,000 cost basis because unrealized appreciation is never deductible for donated property.
4. Donate the stock and deduct $20,000 without limitation because charitable deductions are not limited by adjusted gross income.

Explanation: This question tests the charitable contribution rules for appreciated capital gain property under IRC Section 170(b)(1)(C). When donating publicly traded stock held long-term to a qualified public charity, Priya can generally deduct the full fair market value ($20,000) and avoid recognizing the $12,000 embedded gain, subject to a 30$18,000 limit here). Option B incorrectly suggests selling first provides a larger benefit, when it actually triggers unnecessary capital gains tax. Option C incorrectly limits the deduction to basis, confusing the rule for ordinary income property with capital gain property held long-term. Option D incorrectly states there are no AGI limitations on charitable deductions. For maximum tax benefit, donate appreciated long-term capital assets directly to avoid gain recognition while claiming a fair market value deduction, subject to applicable percentage limitations.

Question 9

1. Donate $20,000 of the appreciated Stock M so the charity receives fair market value and Ethan generally avoids recognizing the embedded long-term capital gain on the donated shares. (correct answer)
2. Donate $20,000 cash and keep the stock, because donating appreciated property requires recognizing capital gain first.
3. Sell $20,000 of Stock M, recognize the gain, and then donate the shares; this increases the deduction because basis is stepped up upon sale.
4. Donate the appreciated shares but deduct only the allocable basis because the property is a capital asset.

Explanation: This question tests tax-efficient charitable giving strategies for appreciated capital assets. By donating $20,000 of appreciated Stock M directly to the charity, Ethan avoids recognizing approximately $9,091 of embedded long-term capital gain while generally claiming a $20,000 charitable deduction (subject to AGI limitations). This provides greater tax benefit than selling the stock and donating cash, which would trigger the capital gain. Option B incorrectly states that donating appreciated property requires gain recognition. Option C incorrectly suggests selling first increases the deduction. Option D incorrectly limits the deduction to basis for long-term capital gain property donated to public charities. The optimal strategy for appreciated assets held long-term is direct donation to avoid gain recognition while claiming a fair market value deduction.

Question 10

1. Sell Stock T to create a long-term capital loss that offsets the long-term gain, reducing net long-term capital gain. (correct answer)
2. Sell Stock U only, because long-term gains can be offset only by short-term losses.
3. Sell neither stock because capital losses may be used only against $3,000 of ordinary income, not against capital gains.
4. Sell both stocks and treat both losses as ordinary losses because the purpose is tax planning.

Explanation: This question tests strategic loss harvesting to offset capital gains efficiently. Kevin should sell Stock T to create a long-term capital loss that directly offsets his long-term capital gain, preserving the character matching and reducing his net long-term capital gain by $8,000. While Stock U's short-term loss would also offset the long-term gain, maintaining character alignment is generally preferable for tax planning. Option B incorrectly states only short-term losses can offset long-term gains. Option C incorrectly limits capital loss use to the $3,000 ordinary income offset. Option D incorrectly suggests capital losses can be recharacterized as ordinary. For optimal tax planning, harvest losses that match the character of your gains to maintain the most favorable treatment of any remaining net amounts.

Question 11

1. Net capital loss of $2,500; deductible $2,500 in 2025 with no carryforward. (correct answer)
2. Net capital loss of $12,000; deductible $3,000 with a $9,000 carryforward.
3. Net capital loss of $2,500; deductible $3,000 with a $500 carryforward.
4. Net capital gain of $9,500 because short-term losses cannot offset long-term gains.

Explanation: This question tests the capital gain and loss netting rules under IRC Section 1211, which requires taxpayers to net short-term and long-term capital gains and losses to determine the overall tax treatment. The key facts are that Paige has a $9,500 long-term capital gain and a $12,000 short-term capital loss, which must be netted together regardless of their character. Under IRS guidance, short-term losses first offset short-term gains (none here), then offset long-term gains, resulting in a net capital loss of $2,500 ($9,500 LTCG - $12,000 STCL). Choice B incorrectly states the net loss as $12,000 by ignoring the netting requirement and only considering the short-term loss. Choice C incorrectly calculates a $2,500 loss but then claims a $3,000 deduction with a $500 carryforward, which is mathematically impossible when the total loss is only $2,500. Choice D incorrectly states that short-term losses cannot offset long-term gains, which directly contradicts the capital loss netting rules. The transferable principle is that capital losses always offset capital gains of any character before applying the $3,000 annual deduction limit for individuals.

Question 12

1. Net capital gain of $17,000 (all short-term).
2. Net capital gain of $10,000 long-term and $7,000 short-term, reported separately with no netting between categories.
3. Net capital gain of $17,000, consisting of $10,000 long-term and $7,000 short-term. (correct answer)
4. Net capital gain of $20,000 long-term because selling expenses do not affect the gain calculation.

Explanation: This question tests the calculation of capital gains on real estate and the netting with other capital gains. Victor's amount realized on the property is $260,000 - $10,000 selling expenses = $250,000, producing a gain of $250,000 - $240,000 = $10,000 long-term. This $10,000 long-term gain plus his $7,000 short-term gain equals a total net capital gain of $17,000, reported as separate components maintaining their character. Option A incorrectly characterizes all gain as short-term. Option B incorrectly prohibits netting between categories for reporting the total. Option D incorrectly excludes selling expenses from the calculation. When multiple capital gains exist without offsetting losses, report the total gain while maintaining the separate character of each component for tax rate purposes.

Question 13

1. Net capital gain of $3,000 short-term.
2. Net capital loss of $1,000; deductible $1,000 in 2025. (correct answer)
3. Net capital gain of $5,000 short-term because carryforwards cannot be used in years with capital gains.
4. Net capital loss of $6,000; deductible $3,000 with a $3,000 carryforward.

Explanation: This question tests the application of capital loss carryforwards in the netting process. Amir first applies his $4,000 long-term capital loss carryforward, which combines with his current year $2,000 long-term loss for a total of $6,000 in long-term losses. This nets against his $5,000 short-term gain, resulting in a net capital loss of $1,000, which is fully deductible in 2025. Option A incorrectly ignores the carryforward. Option C incorrectly prohibits using carryforwards when current year gains exist. Option D incorrectly calculates a $6,000 net loss. Capital loss carryforwards retain their character and are applied first in the netting process, potentially offsetting current year gains before the annual $3,000 limitation applies.

Question 14

1. Net capital gain of $47,000 long-term. (correct answer)
2. Net capital gain of $72,000 short-term because real estate is treated as short-term property upon sale.
3. Net capital gain of $65,000 long-term because selling expenses do not reduce amount realized for capital gain purposes.
4. Net capital loss of $3,000 because long-term losses are deductible against ordinary income up to $3,000 regardless of gains.

Explanation: This question tests the calculation of capital gain on real estate including proper treatment of selling expenses. Sophia's amount realized is $400,000 - $18,000 = $382,000, and her gain is $382,000 - $310,000 = $72,000 long-term. This $72,000 gain is then netted against her $25,000 long-term loss, resulting in a net long-term capital gain of $47,000. Option B incorrectly ignores the required netting of the stock loss. Option C incorrectly excludes selling expenses from the calculation. Option D incorrectly applies the $3,000 loss limitation when gains exceed losses. For real estate transactions, always reduce gross proceeds by selling expenses to determine amount realized, then net all capital gains and losses for the final result.

Question 15

1. Report the $3,200 long-term loss on Schedule D because the repurchase occurred in a different tax year.
2. Disallow the $3,200 loss in 2025 and add it to the basis of the replacement shares because the repurchase occurred within 30 days after the sale. (correct answer)
3. Disallow the loss and permanently lose it because wash sale losses are never added to basis.
4. Treat the loss as short-term because wash sale rules convert long-term losses into short-term losses.

Explanation: This question tests the wash sale rule's application across tax years. Chloe's repurchase of substantially identical Stock W on January 5, 2026 falls within 30 days after her December 15, 2025 sale, triggering the wash sale rule. The $3,200 loss is disallowed for 2025 and must be added to the basis of the replacement shares purchased in 2026. Option A incorrectly allows the loss because the repurchase is in a different year. Option C incorrectly states wash sale losses are permanently lost rather than deferred through basis adjustment. Option D incorrectly suggests wash sales change the character of losses. The wash sale rule's 61-day window spans across tax years, requiring careful year-end planning to avoid unintended deferrals.

Question 16

1. Net capital gain of $6,000 short-term because long-term losses cannot offset short-term gains.
2. Net capital loss of $0 because the gain and loss are equal and must be reported as two separate items without netting.
3. Net capital gain of $0 because the short-term gain and long-term loss net to zero. (correct answer)
4. Net capital loss of $6,000 long-term because the long-term loss controls the character of the net result.

Explanation: This question tests the complete netting of capital gains and losses under IRC Section 1222. Grace has a $6,000 short-term capital gain and a $6,000 long-term capital loss, which net to exactly zero. All capital gains and losses must be netted together regardless of their character before applying any limitations. Option A incorrectly prohibits netting between categories. Option B incorrectly requires separate reporting without netting. Option D incorrectly assigns a character to a zero net amount. When capital gains and losses of different characters offset completely, the result is simply zero with no character designation, demonstrating the importance of comprehensive netting before characterization.

Question 17

1. $10,000 long-term capital gain based on the decedent's original basis.
2. $3,000 long-term capital loss based on the fair market value at date of death. (correct answer)
3. $0 because inherited property is excluded from capital gain and loss reporting.
4. $3,000 short-term capital loss because the item was held less than one year by Zoe.

Explanation: This question tests inherited property basis rules when assets decline in value after death. Zoe's basis in the inherited collection item is the $18,000 fair market value at the date of death, not the decedent's $5,000 basis. When she sells for $15,000, she realizes a $3,000 long-term capital loss, as inherited property receives automatic long-term treatment. Option A incorrectly uses the decedent's original basis. Option C incorrectly states inherited property is excluded from capital gain reporting. Option D incorrectly characterizes the loss as short-term based on Zoe's holding period. The step-up in basis at death can become a step-down when property has declined in value, but the heir still receives long-term treatment for any subsequent gain or loss.

Question 18

1. Net capital gain of $16,500, all long-term. (correct answer)
2. Net capital gain of $20,000 long-term and $3,500 short-term loss, reported separately with no netting between categories.
3. Net capital gain of $20,000 because the short-term loss is limited to $3,000 and the remainder is carried forward.
4. Net capital gain of $13,500 because the long-term gain is reduced by only $3,000 of the short-term loss.

Explanation: This question tests the netting of long-term gains and short-term losses under IRC Section 1222. Carlos has a $20,000 long-term capital gain from the land and a $3,500 short-term capital loss from the stock. These amounts are netted together, with the short-term loss reducing the long-term gain to $16,500, which retains its long-term character since the long-term component is larger. Option B incorrectly prohibits netting between different holding period categories. Option C incorrectly applies the $3,000 annual loss limitation, which only applies when total losses exceed total gains. Option D incorrectly limits the offset to $3,000, confusing the capital loss deduction limit with the netting rules. When netting capital gains and losses, all positions must be combined regardless of character, with the net result taking the character of the larger component.

Question 19

1. Sell Stock Y to create a short-term capital loss, because short-term losses are netted first against long-term gains and therefore always produce a larger tax benefit than long-term losses.
2. Sell Stock X to create a long-term capital loss, which will directly offset the long-term capital gains and reduce net long-term capital gain. (correct answer)
3. Do not sell either stock; capital losses cannot offset capital gains unless the taxpayer has ordinary income.
4. Sell both stocks and report both losses twice—once on Form 8949 and again on Schedule D—to maximize the offset against gains.

Explanation: This question tests strategic tax planning using the capital gain and loss netting rules. Thomas has $18,000 of long-term capital gains and wants to minimize taxes by creating offsetting losses. Selling Stock X creates a long-term capital loss that directly offsets the long-term gains dollar-for-dollar, reducing net long-term capital gain and the associated preferential rate income. Option A incorrectly suggests short-term losses provide greater benefit; while they do offset long-term gains, both types of losses provide equal offsetting power. Option C incorrectly states that capital losses cannot offset capital gains, confusing the $3,000 ordinary income offset limit with the unlimited offset between gains and losses. Option D suggests fraudulent double reporting. For tax planning, match the character of losses to gains when possible to preserve the most favorable tax treatment on remaining net amounts.

Question 20

1. $30,000 long-term capital gain.
2. $2,000 short-term capital gain.
3. $2,000 long-term capital gain. (correct answer)
4. $30,000 short-term capital gain because the shares were held less than one year after inheritance.

Explanation: This question tests the basis and holding period rules for inherited property under IRC Sections 1014 and 1223(9). Elena receives a stepped-up basis equal to the fair market value at the date of death ($40,000), not her father's original basis. Inherited property automatically receives long-term treatment regardless of how long the decedent or beneficiary held it. Her gain is $42,000 - $40,000 = $2,000 long-term capital gain. Option A incorrectly uses the decedent's original basis of $12 per share instead of the stepped-up basis. Option B incorrectly characterizes the gain as short-term, when inherited property always receives long-term treatment. Option D makes the same error regarding holding period while using the correct gain amount. For inherited property, always use date-of-death value as basis and treat any gain or loss as long-term, providing significant tax benefits to heirs.