FREE CPA REG PRACTICE
Tax basis and business-law concept practice
This public teaching resource focuses on two areas that reward careful fact sorting: tax basis and business law. The short exercises are original learning examples, not protected exam content or prediction-report questions. Use them to practice the rule, then read the feedback to see why the distractors fail.
For basis, build the investment ledger before computing a sale result. For business law, identify the transaction type before choosing a rule. These habits make a question feel smaller and help you use future practice feedback to target the step that went wrong.
Practice the skill, then review the reasoning
A taxpayer sells business land for $150,000 cash. The buyer assumes a $30,000 mortgage, and the seller pays $9,000 selling expenses. What is the amount realized? Enter the amount in dollars.
A merchant seller states in a sales contract for commercial ovens, “Each oven will maintain 425°F under normal operating conditions.” The buyer relies on that statement. What is the most direct UCC Article 2 concept?
A lender has a signed security agreement covering a borrower’s inventory, has given loan value, and the borrower has rights in the inventory. The lender has not yet filed a financing statement. Which statement is most accurate?
Build a basis ledger before you calculate gain or loss
Tax basis is the taxpayer’s investment in property for tax purposes. Start with cost or another initial basis. Add qualifying capital improvements and subtract depreciation or other required decreases. The result is adjusted basis, which is the comparison point for a later sale or exchange.
Keep this ledger separate from amount realized. Amount realized can include cash, property received, and liabilities assumed by the buyer, while selling expenses can reduce it. A clean two-schedule approach prevents you from confusing cash proceeds with taxable gain.
Treat gifts and exchanges as special basis questions
Do not assume that every transferred asset carries one simple basis. Gifted property can require different reference amounts for gain and loss when fair market value at the gift date is lower than the donor’s basis. Draw the donor basis and gift-date fair value on a number line before choosing a result.
For an exchange, first classify the property and its use. The current federal like-kind exchange rules generally focus on qualifying real property held for business or investment. A label such as “swap” does not create deferral by itself.
For sales of goods, match the fact to the UCC rule
UCC Article 2 is the starting point for a sale of goods. First identify whether the seller is a merchant and what the contract says about the goods, price, delivery, and warranties. A merchant’s factual product statement can create an express warranty, while a merchant seller can also create an implied warranty of merchantability for ordinary use.
When a contract term is missing, do not assume the agreement automatically fails. Article 2 contains gap-fillers such as a reasonable price in appropriate open-price situations. When performance fails to match the contract, compare the promised and delivered goods before selecting a remedy.
Separate secured-credit and bankruptcy vocabulary
A lender’s Article 9 analysis has stages. Attachment generally asks whether value was given, the debtor has rights in collateral, and there is an authenticated security agreement with a sufficient description. Perfection is a separate issue that commonly affects the lender’s position against other creditors.
A bankruptcy petition changes the setting. The automatic stay generally pauses collection activity on prepetition claims. It is a pause, not a final discharge or an automatic payment of every debt. Identify the timing of the claim and the requested creditor action before choosing an answer.
Questions about this practice
What is the quickest way to start a tax-basis question?
Write a three-line ledger: initial basis, increases, and decreases. Compute adjusted basis before reading the sale proceeds as a gain or loss.
Does cash received always equal amount realized?
No. Amount realized can also include the fair market value of property or services received and certain liabilities assumed by a buyer. Selling expenses can reduce the amount realized.
How can I distinguish an Article 2 question from an Article 9 question?
Article 2 usually starts with a sale of goods. Article 9 usually starts with a lender, collateral, a security agreement, or priority among creditors.
Does the automatic stay erase a debt?
No. The automatic stay generally suspends collection activity after a bankruptcy petition. The ultimate treatment of a debt depends on the bankruptcy process and applicable rules.
References
- IRS Publication 551, Basis of Assets
- IRS Publication 544, Sales and Other Dispositions of Assets
- Cornell Legal Information Institute, UCC Article 2 Sales
- Cornell Legal Information Institute, UCC Article 9 Secured Transactions
- U.S. Courts, Chapter 11 Bankruptcy Basics
Updated October 25, 2026 · PassPredictor