CPA REG Practice Test

CPA REG Basis & Cost Recovery Practice Questions

Basis & Cost Recovery makes up 5 of every 50 questions on a Tigertest CPA REG practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on the AICPA's 2026 REG blueprint. Original multiple-choice questions; 50 per test, weighted like the real section's five areas, 75% target. Not affiliated with the AICPA or NASBA.

1. 1. A business buys a machine for $40,000 and pays $2,400 of sales tax, $1,100 of freight and $1,500 to install it. The machine's tax basis is:

   • A.$43,500
   • B.$45,000
   • C.$40,000
   • D.$42,400

   Answer: B. Basis includes the price and every cost to acquire the asset and get it ready for use: $40,000 + $2,400 + $1,100 + $1,500 = $45,000.

2. 2. Lee converts her personal car, which cost $30,000 and is now worth $18,000, to full business use. Her basis for depreciation is:

   • A.$24,000
   • B.$12,000
   • C.$30,000
   • D.$18,000

   Answer: D. Property converted from personal to business use is depreciated from the lower of its adjusted basis or its fair market value at conversion, here $18,000.

3. 3. Kim receives stock as a gift. The donor's basis was $8,000 and its value at the gift was $5,000; no gift tax was paid. Kim later sells it for $9,500. Her gain is:

   • A.$1,500
   • B.$9,500
   • C.$4,500
   • D.$0

   Answer: A. For a sale at a gain, a donee uses the donor's basis of $8,000. $9,500 - $8,000 = $1,500.

4. 4. Omar receives land as a gift: donor's basis $12,000, value at the gift $7,000, no gift tax. He sells it for $6,200. His recognized loss is:

   • A.$0
   • B.$5,000
   • C.$800
   • D.$5,800

   Answer: C. When value at the gift is below the donor's basis, the basis for a loss is that lower value, $7,000. $6,200 - $7,000 = an $800 loss.

5. 5. Pat receives a gift of shares: donor's basis $20,000, value at the gift $15,000. Pat sells them for $17,000. Pat's result is:

   • A.A $2,000 gain
   • B.A $5,000 loss
   • C.No gain or loss
   • D.A $3,000 loss

   Answer: C. Using the donor's basis gives no gain, and using the $15,000 value gives no loss. A sale between the two values produces neither gain nor loss.

6. 6. Raj inherits land the decedent bought for $50,000. It was worth $120,000 at death, and no alternate valuation was elected. Raj sells it 4 months later for $125,000. His gain is:

   • A.$5,000 long-term
   • B.$75,000 long-term
   • C.$75,000 short-term
   • D.$5,000 short-term

   Answer: A. Inherited property takes a basis of its value at death, $120,000, and is always treated as held long term. $125,000 - $120,000 = $5,000.

7. 7. Tom sells 100 shares at a $1,200 loss and buys 100 shares of the same stock 20 days later for $5,000. His basis in the new shares is:

   • A.$6,800
   • B.$5,000
   • C.$3,800
   • D.$6,200

   Answer: D. The wash sale rule disallows the loss and adds it to the basis of the replacement shares: $5,000 + $1,200 = $6,200.

8. 8. A new business incurs $53,000 of start-up costs and begins operating on July 1. Its maximum deduction for start-up costs in the first year is:

   • A.$3,767
   • B.$3,700
   • C.$2,000
   • D.$5,000

   Answer: B. The $5,000 immediate deduction is cut by the $3,000 over $50,000, leaving $2,000. The other $51,000 is amortized over 180 months: $283.33 x 6 months = $1,700. Total $3,700.

9. 9. A new corporation incurs $4,000 of organizational costs. With the deemed election, its first-year deduction for them is:

   • A.Half, the rest later
   • B.The full $4,000
   • C.Only 1/180 per month
   • D.Nothing until it dissolves

   Answer: B. Up to $5,000 of organizational costs may be deducted in the first year, reduced only when total costs exceed $50,000. All $4,000 is deductible.

10. 10. Points and fees paid to obtain a 10-year business loan are recovered by:

    • A.Adding them to asset basis
    • B.Amortizing over 15 years
    • C.Deducting all in year one
    • D.Amortizing over the loan term

    Answer: D. Costs of getting business debt are amortized over the life of the loan. Any unamortized balance is deducted if the loan is paid off early.