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Practice and exam technique

Practice questions: tax planning

Compiled by the Sitonce editorial team from CFP Board sources listed belowUpdated 4 min readFacts verified 1 September 2026
The short answer

Tax planning is 14 per cent of the exam and appears inside questions scored elsewhere. These five cover gifted property basis, capital loss netting, the wash sale rule, charitable giving and why AGI matters.

Tax questions reward knowing the rule rather than the arithmetic. Each of these turns on a rule.

Question 1

A father gifts stock with a basis of USD 50,000 and a fair market value of USD 30,000 to his daughter. She later sells it for USD 40,000. What is her gain or loss?

  1. A loss of USD 10,000
  2. A gain of USD 10,000
  3. No gain and no loss
  4. A loss of USD 20,000
Answer: C. The dual basis rule applies to gifted property that has fallen below the donor's basis. The donor's USD 50,000 basis computes a gain, the USD 30,000 value at the gift date computes a loss, and a sale between the two produces neither. This is why loss property should be sold by the donor and the cash gifted instead.
Question 2

A client has USD 8,000 of short-term capital gains, USD 3,000 of long-term gains, USD 14,000 of short-term losses and USD 2,000 of long-term losses. How much offsets ordinary income this year?

  1. USD 5,000
  2. USD 3,000
  3. USD 1,500
  4. Nothing - losses can only offset gains
Answer: B. Net within each period first: short-term is a net USD 6,000 loss, long-term a net USD 1,000 gain. Netting across gives a net USD 5,000 capital loss. Only USD 3,000 offsets ordinary income this year, with USD 2,000 carried forward indefinitely retaining its character.
Question 3

A client sells a mutual fund at a loss in her taxable account on 10 March. On 25 March, her spouse buys the same fund inside his IRA. What is the consequence?

  1. No consequence - different accounts and different taxpayers
  2. The loss is deferred and added to the IRA basis
  3. The loss is permanently disallowed
  4. The loss is allowed because an IRA is a different account type
Answer: C. The wash sale rule applies across accounts and includes a spouse's purchase. Where the replacement is bought inside an IRA there is no basis to add the disallowed loss to, so it is permanently lost rather than merely deferred. It is the harshest version of the rule.
Question 4

A client wants to give USD 20,000 to a public charity. She holds stock bought eleven months ago, now worth USD 20,000 with a basis of USD 8,000. What should she do?

  1. Donate the stock now for a USD 20,000 deduction
  2. Donate the stock now for a USD 8,000 deduction
  3. Wait past the one-year mark, then donate the stock
  4. Sell the stock, pay the tax, and donate the cash
Answer: C. Property held one year or less is deductible only at basis, so donating now gives a USD 8,000 deduction. Waiting past twelve months converts it to a fair market value deduction of USD 20,000 and avoids the gain entirely. Option B is technically accurate and is not the best advice, which is what the question is testing.
Question 5

Two clients each have USD 5,000 of a deductible item. One is an above-the-line adjustment; the other is an itemized deduction. Both clients are in the 24 per cent bracket. Why might the above-the-line item be worth more?

  1. It is deductible at a higher rate
  2. It reduces adjusted gross income, which drives other limits and phase-outs
  3. It is refundable
  4. It can be carried forward
Answer: B. Both save the same marginal rate on the deduction itself. The above-the-line adjustment also reduces adjusted gross income, which drives medical expense floors, charitable limits, credit phase-outs, IRA deductibility, the net investment income tax and Medicare surcharges.

The pattern

Two of these have an option that is factually correct and is not the best answer. That is characteristic of the exam: several defensible options, one best.

Reading for what the question asks - the consequence, or the advice - is what separates them.

Figures are for the 2026 tax year

Dollar limits and thresholds are indexed annually. Confirm current figures before relying on them; the exam tests the rule rather than the number.

Common questions

What is the dual basis rule?

For gifted property that has fallen below the donor's basis, the donor's basis computes a gain, the value at the gift date computes a loss, and a sale between the two produces neither.

How do capital losses net?

Within each holding period first, then across. A net capital loss offsets up to USD 3,000 of ordinary income a year, with the remainder carried forward indefinitely and keeping its character.

Does the wash sale rule apply across accounts?

Yes, including a spouse's purchase. Where the replacement is bought in an IRA the loss is permanently disallowed, because there is no basis to add it to.

Why wait past a year before donating stock?

Property held one year or less is deductible only at basis. Past twelve months the deduction is fair market value and the gain is avoided entirely.

Why is an above-the-line deduction worth more?

Both save the same marginal rate, but the above-the-line item also reduces adjusted gross income, which drives medical floors, charitable limits, phase-outs, the net investment income tax and Medicare surcharges.

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