CPT Tax Implications & Record Keeping 3

Question 1

Futures contracts traded on a regulated exchange are typically taxed under which IRS rule that applies a blended 60/40 long-term/short-term rate?

Accepted Answer

Section 1256 rule

Answer

Section 1256 contracts (e.g., regulated futures) are taxed at a blended 60% long-term / 40% short-term capital gains rate regardless of holding period.

Question 2

A trader uses a home office exclusively for trading. Which condition must be met for the home office deduction to be allowed under TTS?

Accepted Answer

The space must be used regularly and exclusively for trading business

Answer

IRS rules require that the home office space be used regularly and exclusively for the trade or business to qualify for the deduction.

Question 3

Which of the following best describes the 'substantially identical security' concept in the context of the wash-sale rule?

Accepted Answer

Options or warrants on the same underlying stock you sold at a loss

Answer

Buying options or warrants on the same stock sold at a loss is considered acquiring a substantially identical security, triggering the wash-sale rule.

Question 4

When a trader carries forward a net capital loss to the next tax year, the maximum amount of capital loss that can offset ordinary income in a single year is:

Accepted Answer

$3,000

Answer

Non-corporate taxpayers may deduct up to $3,000 of net capital losses against ordinary income per year, carrying the remainder forward.

Question 5

A day trader who has NOT made the Section 475(f) election sells a stock at a loss and repurchases it the next day. The tax result is:

Accepted Answer

The loss is deferred and added to the cost basis of the repurchased shares

Answer

Under the wash-sale rule, a disallowed loss is not permanently lost but is added to the cost basis of the replacement shares.

(CPT) Certified Pro Trader Practice Test

(CPT) Certified Pro Trader Practice Test

CPT Tax Implications & Record Keeping 3