What is the holding period of property a beneficiary inherits from a decedent?

It includes the decedent's holding period only

It begins on the date the estate closes

Short-term unless held more than one year by the beneficiary

Which item is added to the basis of a home the taxpayer owns?

The cost of adding a new bedroom

The cost of repainting the living room

Which amount is included in the basis of real estate the taxpayer purchases?

Title insurance and recording fees paid by the buyer

Fire insurance premiums for the first year paid at closing

Charges for using utilities before closing

Points paid to obtain a home mortgage loan

A donor paid gift tax on a gift of stock that had appreciated. How does the gift tax affect the donee's basis?

Basis is increased by the portion of gift tax attributable to the net appreciation in value

Basis is decreased by the gift tax paid

Basis is increased by the entire gift tax paid

What is the holding period of gifted property when the donee uses the donor's adjusted basis to figure gain?

It includes the donor's holding period

It begins on the day after the date of the gift

Basis: purchased, gifted and inherited property

Q: What is stepped-up basis?

Property acquired from a decedent takes a basis equal to its fair market value at death, erasing pre-death appreciation for income tax.

Q: What basis do I use for gifted stock?

Generally the donor’s basis. If the stock was worth less than the donor’s basis when given, use that lower value to compute a loss.

Basis is what you subtract from the amount realized to find gain or loss: cost for purchases, fair market value at death for inherited property (stepped up), and generally the donor's basis for gifts, with a special lower basis for losses when the gift was worth less than the donor's basis.

Updated 2026-09-23 · 4 sources · By the EnrolledAgentKit team

Exam part

Part 1

Individuals

IRS domain

Income and Assets

17 of 85 scored Qs

Tax year tested

2025

2026-27 SEE

Practice questions

10 free below

The rules the exam tests

Figures for tax year 2025, the year the 2026-27 SEE tests. Verify against the cited primary source.
Rule	What it says (2025)	Source
Purchased property	Cost, including sales tax, freight, installation and settlement costs	IRC 1012; Pub 551
Inherited property	FMV at date of death (or alternate valuation date); holding period always long-term	IRC 1014, 1223(9)
Gift, FMV >= donor basis	Donor's basis (plus gift tax on appreciation); donor holding period tacks	IRC 1015
Gift, FMV < donor basis	Gain basis = donor basis; loss basis = FMV at gift; in-between sale = no gain or loss	IRC 1015(a)
Stock splits / nontaxable stock dividends	Spread existing basis over all shares	IRC 307
Wash sale	Disallowed loss added to replacement shares' basis	IRC 1091
Adjustments	Add improvements; subtract depreciation allowed or allowable, casualty losses, credits	IRC 1016

Worked example

Facts: Dad bought land for $40,000. When it was worth $30,000 he gave it to Ana. Ana sells.

Ana sells for	Basis used	Result
$45,000	$40,000 (gain basis)	$5,000 gain
$25,000	$30,000 (loss basis)	$5,000 loss
$35,000	neither works	no gain or loss

Had Dad died and left her the land worth $30,000, her basis would simply be $30,000.

Exam traps

Inherited property is long-term regardless of holding period.
Dual basis applies only when FMV at the gift is below the donor’s basis.
Depreciation “allowable” reduces basis even if never claimed.
Points on a home loan are not part of basis; title and recording fees are.