SEE - Special Enrollment Exam Quiz: Tax Reporting And Sale Planning
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Tax Reporting And Sale PlanningQuestion 1 of 15

On December 20, 2025, a single taxpayer sold 100 shares of ZYX Corporation stock for $4,000. She had purchased those shares on June 1, 2024 for $6,500. On December 29, 2025, she purchased 100 shares of ZYX stock for $4,200 in a taxable brokerage account. She continued to hold the replacement shares through January 31, 2026. She had no other sales of ZYX stock in 2025.

What are the tax consequences of the December 2025 transactions?

$2,500 loss is recognized in 2025; the replacement shares have a $4,200 basis.
No loss is recognized in 2025; the replacement shares have a $6,700 basis.
No loss is recognized in 2025; the replacement shares have a $4,200 basis.
$2,500 loss is recognized in 2025; the replacement shares have a $6,700 basis.
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SEE - Special Enrollment Exam Quiz

SEE - Special Enrollment Exam Quiz: Tax Reporting And Sale Planning

Practice Tax Reporting And Sale Planning in SEE - Special Enrollment Exam with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Tax Reporting And Sale Planning, giving you a quick way to practice the rules, question types, and explanations that matter most for SEE - Special Enrollment Exam.

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Question 1

On December 20, 2025, a single taxpayer sold 100 shares of ZYX Corporation stock for $4,000. She had purchased those shares on June 1, 2024 for $6,500. On December 29, 2025, she purchased 100 shares of ZYX stock for $4,200 in a taxable brokerage account. She continued to hold the replacement shares through January 31, 2026. She had no other sales of ZYX stock in 2025.

What are the tax consequences of the December 2025 transactions?

  1. $2,500 loss is recognized in 2025; the replacement shares have a $4,200 basis.
  2. No loss is recognized in 2025; the replacement shares have a $6,700 basis. (correct answer)
  3. No loss is recognized in 2025; the replacement shares have a $4,200 basis.
  4. $2,500 loss is recognized in 2025; the replacement shares have a $6,700 basis.
Explanation: IRC §1091(a) disallows a loss from a sale of stock if, within 30 days before or after the sale, the taxpayer acquires substantially identical stock. The 2,500loss(2,500 loss (6,500 - $4,000) is disallowed because she bought 100 shares of the same stock nine days later. Under IRC §1091(d), the disallowed loss is added to the basis of the replacement shares: $4,200 + $2,500 = $6,700, and the replacement shares' holding period includes the holding period of the sold shares. Choice A recognizes the loss but keeps replacement basis at cost. Choice C disallows the loss but fails to increase basis, converting a temporary deferral into a permanent loss of the deduction. Choice D both recognizes the loss and increases the basis, allowing a double benefit.

Question 2

In 2025, a taxpayer exchanged a rental apartment building with an adjusted basis of $300,000, a fair market value of $500,000, and a mortgage of $100,000 for another rental apartment building with a fair market value of $460,000 and subject to a mortgage of $60,000. She received no cash or other property. The exchange qualified as a like-kind exchange under IRC §1031.

What are the tax consequences of the exchange?

  1. Recognized gain $40,000; basis in the replacement building $460,000.
  2. Recognized gain $0; basis in the replacement building $300,000.
  3. Recognized gain $200,000; basis in the replacement building $460,000.
  4. Recognized gain $40,000; basis in the replacement building $300,000. (correct answer)
Explanation: IRC §1031(a) defers gain on like-kind exchanges of property held for business or investment. IRC §1031(b) requires gain recognition to the extent of boot received. A net reduction in mortgage debt is boot: she was relieved of $100,000 but assumed $60,000, so she received $40,000 of boot. Realized gain is 200,000(200,000 (460,000 FMV received + $40,000 net debt relief - $300,000 adjusted basis). Recognized gain is the lesser of realized gain or boot, 40,000.UnderIRC§1031(d),thereplacementbasisistheoldadjustedbasis(40,000. Under IRC §1031(d), the replacement basis is the old adjusted basis (300,000) minus boot received (40,000)plusgainrecognized(40,000) plus gain recognized (40,000), or $300,000. Choice A uses FMV basis instead of substituted basis. Choice B ignores the debt relief as boot. Choice C treats the exchange as fully taxable and ignores §1031.

Question 3

A single taxpayer sold stock held for 14 months in November 2025, realizing a $200,000 long-term capital gain. Her taxable income for 2025, before considering this gain, was $50,000. After including this gain, her MAGI for net investment income tax purposes was $420,000. She had no other capital gains, capital losses, or net investment income.

What is the total additional federal tax resulting from this gain, including the net investment income tax?

  1. The additional federal tax is $37,600. (correct answer)
  2. The additional federal tax is $30,000.
  3. The additional federal tax is $40,000.
  4. The additional federal tax is $47,600.
Explanation: Long-term capital gain rates are stacked on taxable income. For 2025, the 0% rate ends at $48,350 for single taxpayers and the 15% rate ends at $533,400 under IRC §1(h). Because taxable income before the gain is already above the 0% bracket and total taxable income of $250,000 is below the 20% threshold, the entire gain is taxed at 15%. The gain is also net investment income; her MAGI exceeds the $200,000 single threshold by 220,000,sothefullgainissubjecttothe3.8220,000, so the full gain is subject to the 3.8% NIIT under IRC §1411. Additional tax = (200,000 × 15%) + ($200,000 × 3.8%) = $30,000 + $7,600 = $37,600. Choice B omits the NIIT. Choice C applies the 20% capital gain rate without NIIT. Choice D applies both the 20% rate and NIIT, but total taxable income is below the $533,400 20% threshold.

Question 4

In February 2016, a taxpayer paid $100,000 for newly issued stock of a domestic C corporation that met all requirements to be a qualified small business under IRC §1202. The corporation satisfied the active business requirement throughout the taxpayer's holding period. In July 2025, she sold all of the stock for $12,000,000. She had no prior QSBS dispositions.

What is the correct treatment of her gain on the 2025 sale?

  1. The entire $11,900,000 gain is excluded from gross income.
  2. $5,950,000 is excluded and $5,950,000 is taxable as long-term capital gain.
  3. $10,000,000 is excluded and $1,900,000 is taxable as long-term capital gain. (correct answer)
  4. $1,000,000 is excluded and $10,900,000 is taxable as long-term capital gain.
Explanation: IRC §1202(a)(4) excludes 100% of gain on qualified small business stock acquired after September 27, 2010, and held more than five years. IRC §1202(b)(1) caps the exclusion at the greater of $10,000,000 or 10 times the adjusted basis of the stock. Here the gain is 11,900,000(11,900,000 (12,000,000 - $100,000), and 10 times basis is $1,000,000. The greater cap is $10,000,000, so $10,000,000 is excluded and $1,900,000 is taxable as long-term capital gain. Choice A ignores the §1202(b) dollar cap. Choice B applies the old 50% exclusion ratio applicable to stock acquired in earlier years. Choice D uses 10 times basis as the cap, but it is not the greater amount.

Question 5

A single taxpayer sold her principal residence in May 2025 for $520,000. She bought the home in March 2016 for $300,000 and lived in it continuously until the sale. From 2019 through 2024 she used one room exclusively and regularly as a home office and properly claimed $12,000 of depreciation deductions for that use. Selling expenses were $30,000.

What amount of gain from the sale must she include in gross income for 2025?

  1. No gain is includible because the entire $202,000 gain is excluded under IRC §121.
  2. $12,000 is includible as unrecaptured §1250 gain; the remaining $190,000 gain is excluded under IRC §121. (correct answer)
  3. $12,000 is includible as ordinary income under IRC §1245; the remaining $190,000 gain is excluded under IRC §121.
  4. All $202,000 is includible, because the home office use prevents any IRC §121 exclusion.
Explanation: IRC §121(b)(2) generally excludes up to $250,000 of gain on a single taxpayer's sale of a principal residence after the 2-of-5-year ownership and use test is met. IRC §121(d)(6) provides an exception: the exclusion does not apply to gain attributable to depreciation adjustments allowable after May 6, 1997. Amount realized is 490,000(490,000 (520,000 - $30,000), adjusted basis is 288,000(288,000 (300,000 - $12,000), and total gain is $202,000. The $12,000 depreciation portion is not excludable and is unrecaptured §1250 gain under IRC §1(h)(1)(D), not ordinary income. The remaining $190,000 is within the exclusion. Choice A ignores the depreciation exception. Choice C misclassifies residential real estate depreciation as §1245 ordinary income. Choice D treats the home office as disqualifying the entire exclusion; an office within the dwelling unit needs no allocation of gain (Treas. Reg. § 1.121-1(e)), so only the depreciation is taxable.

Question 6

In 2025, a father gave his daughter 1,000 shares of stock he had bought in 2017 for $80,000. The stock's fair market value on the date of the gift was $60,000. The father had sufficient gift tax exclusion so no gift tax was paid. The daughter sold all of the shares later in 2025 for $70,000.

Which of the following correctly describes the daughter's income tax treatment of the sale?

  1. She recognizes a $10,000 long-term capital gain, using the stock's fair market value at the date of the gift as her basis.
  2. She recognizes a $10,000 long-term capital loss, using the donor's adjusted basis as her basis.
  3. She recognizes no gain or loss because the gift itself was excluded from gross income under IRC §102.
  4. She recognizes no gain or loss because her basis for gain is $80,000 and her basis for loss is $60,000. (correct answer)
Explanation: IRC §1015(a) provides that gifted property takes the donor's adjusted basis, but Treas. Reg. §1.1015-1(a)(2) provides a special loss-basis rule: if the fair market value on the date of the gift is less than the donor's adjusted basis, the donee's basis for loss is that fair market value. Here the daughter's basis for gain is $80,000 and her basis for loss is $60,000. Because the $70,000 sale price is below the gain basis and above the loss basis, she recognizes neither gain nor loss. Choice A uses the FMV basis for a gain computation when the donor's basis is higher. Choice B uses the carryover basis for a loss computation when the FMV-at-gift basis controls. Choice C confuses the §102 exclusion of the gift itself with the tax consequences of the donee's later sale.

Question 7

In January 2022, an employee was granted an incentive stock option to buy 1,000 shares of his employer's stock at $10 per share. On January 10, 2025, he exercised the option when the fair market value of the stock was $25 per share. On December 15, 2025, he sold all 1,000 shares for $30 per share.

What is the correct tax treatment of the sale?

  1. $20,000 long-term capital gain and no ordinary income.
  2. $20,000 ordinary income and no capital gain.
  3. $15,000 ordinary income and $5,000 short-term capital gain. (correct answer)
  4. $15,000 ordinary income and $5,000 long-term capital gain.
Explanation: Under IRC §422(a), the favorable ISO treatment applies only if the taxpayer does not dispose of the stock within two years after grant or within one year after transfer. Here the sale occurred less than one year after exercise, so it is a disqualifying disposition. Under IRC §421(b), the bargain element — the excess of FMV at exercise over the option price — is compensation: 1,000 × ($25 - $10) = 15,000.Theholdingperiodforthestockbeginsatexercise,sotheadditionalgain,1,000×(15,000. The holding period for the stock begins at exercise, so the additional gain, 1,000 × (30 - $25) = $5,000, is short-term capital gain. Choice A treats the sale as a qualifying ISO disposition. Choice B treats the entire gain as compensation and ignores the capital gain component. Choice D treats the post-exercise gain as long-term, but the shares were held less than one year after exercise.

Question 8

In 2025, a taxpayer bought 100 shares of LKM Corporation for $4,000. On March 3, 2025, the taxpayer sold all 100 shares for $2,500. On March 10, 2025, the taxpayer bought 20 shares of LKM Corporation for $1,000. The taxpayer had no other capital transactions during 2025. What amount of loss may the taxpayer deduct on the 2025 return?

  1. $0
  2. $300
  3. $1,200 (correct answer)
  4. $1,500
Explanation: Authority: IRC § 1091(a) and (d). The March 10 purchase of 20 shares of the same stock within 30 days after the sale means 20 of the 100 shares sold are replacement shares. The realized loss is $4,000 - $2,500 = $1,500. The disallowed loss is 20/100 x $1,500 = $300. The remaining 1,200isdeductible;becausethetaxpayerhadnoothercapitaltransactions,itisthenetcapitallossreportedonScheduleD.ChoiceC(1,200 is deductible; because the taxpayer had no other capital transactions, it is the net capital loss reported on Schedule D. Choice C (1,200) is correct. Choice A (0)treatstheentirelossasdisallowedbecauseawashsaleoccurred.ChoiceB(0) treats the entire loss as disallowed because a wash sale occurred. Choice B (300) reports the disallowed amount as the deductible loss. Choice D ($1,500) ignores the wash-sale rule entirely.

Question 9

In 2025, a taxpayer sold undeveloped land held for investment to an unrelated buyer for $300,000. The buyer paid $50,000 cash, assumed the $50,000 mortgage on the land, and gave a note for $200,000 bearing adequate stated interest, payable in annual principal installments beginning in 2026. The taxpayer's adjusted basis in the land was $120,000, and selling expenses were $30,000. The taxpayer did not elect out of the installment method. What amount of gain must be reported for 2025?

  1. $30,000 (correct answer)
  2. $36,000
  3. $50,000
  4. $60,000
Explanation: Authority: IRC § 453. Gross profit is $300,000 - $120,000 - $30,000 = $150,000. Because the assumed mortgage of $50,000 does not exceed the adjusted basis, it reduces the contract price to $250,000 and is not a payment in the year of sale. Gross profit percentage is $150,000 / $250,000 = 60%. The only 2025 payment is the $50,000 cash down payment, so recognized gain is 60% x $50,000 = 30,000.ChoiceA(30,000. Choice A (30,000) is correct. Choice B (36,000)omitsthesellingexpenses,producinga7236,000) omits the selling expenses, producing a 72% gross profit percentage. Choice C (50,000) treats the cash down payment as entirely gain. Choice D ($60,000) treats the assumed mortgage as an additional current payment.

Question 10

In 2025, a taxpayer exchanged a rental building (adjusted basis $200,000, fair market value $500,000, subject to a $100,000 mortgage) for another rental building (fair market value $450,000, subject to an $80,000 mortgage) plus $30,000 cash. The exchange qualified as a like-kind exchange under IRC § 1031. What amount of gain must the taxpayer recognize?

  1. $0
  2. $50,000 (correct answer)
  3. $250,000
  4. $300,000
Explanation: Authority: IRC § 1031(b) and (d). Amount realized is $450,000 (FMV of replacement building) + $30,000 cash + 20,000netmortgagerelief(20,000 net mortgage relief (100,000 - $80,000) = $500,000. Realized gain is $500,000 - $200,000 adjusted basis = $300,000. Boot received is $30,000 cash + $20,000 net mortgage relief = 50,000.Recognizedgainisthelesserofrealizedgain(50,000. Recognized gain is the lesser of realized gain (300,000) and boot (50,000),soChoiceB(50,000), so Choice B (50,000) is correct. Choice A (0)treatstheexchangeaswhollytax−freeandignoresboot.ChoiceC(0) treats the exchange as wholly tax-free and ignores boot. Choice C (250,000) is the deferred gain, not the recognized gain. Choice D ($300,000) is the realized gain before applying the boot limitation.

Question 11

Which of the following is correct regarding a like-kind exchange under IRC § 1031?

  1. Boot received in an otherwise qualifying like-kind exchange is not taxable if the taxpayer reinvests the boot in like-kind property by the end of the exchange period.
  2. Like-kind exchange treatment applies to an exchange of inventory if the inventory is exchanged for real property that will be held for investment rather than sold to customers.
  3. Real property held for business or investment use qualifies for nonrecognition if exchanged solely for like-kind real property; inventory and property held primarily for personal use do not. (correct answer)
  4. A taxpayer may recognize a loss on like-kind real property while deferring gain on other like-kind real property in the same exchange because each property transferred is tested separately.
Explanation: IRC § 1031(a)(1) provides nonrecognition for an exchange of real property held for productive use in a trade or business or for investment if the property is exchanged solely for like-kind real property, and IRC § 1031(a)(2) excludes inventory and other property held primarily for sale. Choice C states that eligibility rule. Choice A misstates the boot rule: boot received in an otherwise qualifying exchange is taxable to the extent of realized gain even if reinvested. Choice B misstates the inventory exclusion: inventory and property held primarily for sale do not qualify under § 1031 regardless of the character of the property received. Choice D misstates the nonrecognition rule: losses are also not recognized on like-kind real property, so a taxpayer cannot selectively recognize a loss while deferring gain.

Question 12

Which of the following is correct regarding an installment sale under IRC § 453?

  1. The installment method applies only if the taxpayer elects it on a timely filed return; otherwise all gain from the sale is recognized in the year of sale.
  2. The gross profit percentage is determined by dividing the contract price by the gross profit, and that percentage is applied to each payment received.
  3. Under the installment method, gain from an installment sale is reported as payments are received, but recapture income under § 1245 or § 1250 is recognized in the year of sale to the extent of the gain. (correct answer)
  4. The installment method applies to sales of inventory by a taxpayer who regularly sells that type of personal property in the ordinary course of business.
Explanation: IRC § 453(a) generally requires gain from an installment sale to be reported as payments are received, and IRC § 453(i) provides that recapture income under § 1245 or § 1250 is recognized in the year of disposition notwithstanding the installment method. Choice C states this rule. Choice A reverses the default rule: the installment method applies automatically unless the taxpayer elects out on a timely filed return. Choice B reverses the gross profit ratio; it is gross profit divided by contract price. Choice D misstates the dealer-disposition rule: installment reporting is not available for sales of inventory or personal property by a person who regularly sells that property.

Question 13

Which of the following is correct regarding the exclusion of gain from the sale of a principal residence for 2025?

  1. A qualifying taxpayer may exclude gain from the sale of a principal residence, but the exclusion does not apply to gain attributable to depreciation adjustments for periods after May 6, 1997. (correct answer)
  2. For a married couple filing jointly to qualify for the maximum exclusion, each spouse must satisfy the ownership test and at least one spouse must satisfy the use test.
  3. A taxpayer who sold another principal residence during the preceding five years may not claim the exclusion for the current sale, even if the current residence meets the ownership and use tests.
  4. A taxpayer who claimed a home office deduction for part of the residence is disqualified from claiming the exclusion for any of the gain, even if the home office is no longer used.
Explanation: IRC § 121(a) and (b)(1) permit a qualifying taxpayer to exclude gain from the sale of a principal residence, and IRC § 121(d)(6) provides that the exclusion does not apply to gain attributable to depreciation adjustments for periods after May 6, 1997. Choice A correctly states that rule. Choice B misstates the married-filing-jointly rule of IRC § 121(b)(2)(A): only one spouse must satisfy the ownership test, and both spouses must satisfy the use test. Choice C misstates the frequency rule of IRC § 121(b)(3): the prior-sale bar runs for two years, not five years, and a reduced exclusion may be available for certain sales. Choice D is wrong because claiming a home office deduction does not disqualify the residence; it only makes the depreciation-related portion of the gain ineligible for the exclusion.

Question 14

Which of the following is correct regarding the basis of property acquired by gift and later sold by the donee?

  1. The donee's basis is always the donor's adjusted basis, increased by any gift tax paid, regardless of the fair market value on the date of the gift.
  2. The donee's basis is always the fair market value on the date of the gift for purposes of computing both gain and loss, because a gift is a completed transfer.
  3. If the amount realized on a later sale is between the donor's adjusted basis and the lower gift-date fair market value, the donee recognizes gain or loss measured from the gift-date fair market value.
  4. If the gift-date fair market value is less than the donor's adjusted basis, the donee uses the donor's basis for gain and the gift-date fair market value for loss. (correct answer)
Explanation: IRC § 1015(a) provides that the donee's basis is generally the donor's adjusted basis; when the gift-date fair market value is less than that basis, the basis for determining loss is the gift-date fair market value. Treas. Reg. § 1.1015-1(a)(2) is consistent. Choice D states the dual-basis rule. Choice A is too broad: the loss basis is the gift-date fair market value, and the gift-tax adjustment under § 1015(d)(6) is limited to gift tax attributable to the net appreciation in the gift. Choice B incorrectly substitutes a fair market value basis, which section 1015 does not use for appreciated gift property. Choice C misstates the between-bases result: when the amount realized falls between the donor's adjusted basis and the lower gift-date fair market value, the donee recognizes no gain or loss.

Question 15

Which of the following is correct regarding a wash sale of stock or securities?

  1. A purchase of substantially identical stock or securities before the sale date does not create a wash sale; only a purchase after the sale date triggers the loss disallowance for that sale.
  2. When a loss is disallowed, the disallowed loss is added to the basis of the replacement stock or securities, and the replacement's holding period includes the holding period of the stock or securities sold. (correct answer)
  3. The wash sale rule applies only to losses on common stock and does not apply to losses on bonds, mutual funds, or options to acquire substantially identical stock.
  4. The disallowed loss is carried over and allowed when the replacement property is sold, without any adjustment to the basis of the replacement property in the meantime.
Explanation: IRC § 1091(a) and (d); IRC § 1223(3). A loss on a sale of stock or securities is disallowed if the taxpayer acquires substantially identical stock or securities within 30 days before or 30 days after the sale, a 61-day window. Under § 1091(d), the disallowed loss is reflected in the basis of the replacement stock or securities, and under § 1223(3) the holding period of the stock or securities sold is added to the holding period of the replacement. Choice B is correct. Choice A is wrong because the window includes acquisitions in the 30 days before the sale as well as the 30 days after it. Choice C is wrong because § 1091 applies to stock or securities generally, and it expressly covers contracts or options to acquire substantially identical stock or securities. Choice D is wrong because the disallowed loss is not held in suspense as a separate carryover; it is preserved through the basis adjustment to the replacement property and recovered when that property is sold.