REG topic guide

Basis explained for REG CPA candidates.

Basis is the tax exam's running scorecard. It affects gain, loss, depreciation, distributions, deductions, and how much tax consequence remains after a transaction.

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By World of Accountants editorial team. Last reviewed August 23, 2026. World of Accountants is independent and not affiliated with the AICPA, NASBA, Becker, NINJA, UWorld, Gleim, or other CPA review providers.

REG sample question

Test the rule before you leave this REG guide.

Read the topic explanation, then use this real REG question to check whether the controlling fact is sticking.

REG-000001REG-IIIGross income

While preparing a client tax file, an employee receives wages for services performed during the year. How are the wages generally treated for federal tax purposes?

A.The wages are included in gross income unless a specific exclusion applies.
B.Excluded from gross income unless the employer separately reports the amount on an information return
C.Deferred until the taxpayer uses the cash for personal expenses
D.Taxable only to the extent the wages exceed the employee's unreimbursed work-related expenses

Answer: A. The wages are included in gross income unless a specific exclusion applies.

The wages are included in gross income unless a specific exclusion applies.

Why the other answers are wrong

B. The choice "The wages are excluded because they were earned through labor" misses the issue because compensation for services is generally taxable.
C. The choice "The wages are deferred until the employee spends the cash" misses the issue because taxation is not based on when the cash is spent.
D. The choice "Only half of the wages are taxable" misses the issue because there is no general rule taxing only half of wages.

Core idea

Basis usually starts with cost or contributed value, then changes as tax events occur. The exam asks you to track those changes instead of treating basis as a fixed number.

What REG likes to test

Expect property sales, gifts, inherited property, partnership interests, shareholder stock basis, distributions, and loss limitations.

Common miss

Many candidates compute gain or loss before identifying adjusted basis, amount realized, and whether a nonrecognition rule applies.

How to practice

For every basis question, write beginning basis, increases, decreases, and ending basis before choosing an answer.

How to use this guide

Turn basis explained for reg cpa candidates into a short practice loop.

Read the core idea first, then answer a small set while the rule is still active in your head. The goal is to see whether you can recognize the tested fact without rereading the guide.

Spot the tested fact

Before choosing an answer, name the one fact that should control the result. REG questions often become easier once the controlling fact is separated from background detail.

Explain the distractor

When an answer is wrong, say why it is wrong in one sentence. That habit turns answer review into durable exam judgment instead of memorizing a letter.

Retest later

Bookmark misses and revisit them after another study session. A topic is stronger when you can recover it after time has passed.

REG topic guides

Keep going with related REG topics.

REGTax basis for REG CPA candidates

Adjusted basis, property basis, entity basis, distributions, and loss-limit logic.

REGLike-kind exchanges for REG CPA candidates

Real-property nonrecognition, boot, deferred exchange facts, and carryover basis.

REGIndividual tax for REG CPA candidates

Gross income, deductions, credits, filing status, dependents, and individual tax calculation traps.

REGCorporation tax for REG CPA candidates

C corporations, S corporations, distributions, shareholder basis, book-tax differences, and loss limits.

REGMACRS depreciation for REG CPA candidates

Recovery periods, conventions, bonus depreciation, Section 179, and basis adjustments.

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Practice loop

Use the topic, then answer questions while the idea is fresh.

Short practice sets are enough to expose whether the rule is sticking.

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