REG topic guide

Tax basis for REG CPA candidates.

Tax basis questions are easier when you stop treating basis as one formula. Different taxpayers and transactions create different basis stories.

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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

Tax basis measures a taxpayer's unrecovered investment for tax purposes. It can increase, decrease, carry over, step up, or limit deductions depending on the transaction.

What REG likes to test

Expect property purchases, gifts, inheritances, partnership interests, S corporation stock and debt basis, distributions, liabilities, depreciation, and suspended losses.

Common miss

Candidates often use fair value when the rule asks for adjusted basis, or they forget that liabilities can change owner-level basis in entity questions.

How to practice

Label the taxpayer first, then track beginning basis, increases, decreases, and the tax consequence that basis controls.

How to use this guide

Turn tax basis 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.

REGBasis explained for REG CPA candidates

The tax scorecard behind gain, loss, deductions, distributions, and depreciation.

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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