SOFA-CFE · Question #343
Gains and losses are recognized for tax purposes until they are realized.
The correct answer is B. False. B is correct because the statement is backwards - gains and losses are generally not recognized for tax purposes until they are realized. The realization principle holds that a taxable event occurs only when a transaction actually occurs (e.g., selling an asset), not merely…
Question
Gains and losses are recognized for tax purposes until they are realized.
Options
- ATrue
- BFalse
How the community answered
(31 responses)- A19% (6)
- B81% (25)
Explanation
B is correct because the statement is backwards - gains and losses are generally not recognized for tax purposes until they are realized. The realization principle holds that a taxable event occurs only when a transaction actually occurs (e.g., selling an asset), not merely when value changes on paper.
Why A is wrong: Choosing "True" would mean unrealized gains (like a stock that rose in value but hasn't been sold) are immediately taxable - which is not how tax law works. You owe no tax on a gain simply because it exists on paper.
Memory tip: Think of the phrase "No sale, no tax." Until you actually sell or exchange an asset and lock in the gain or loss, there is nothing for the IRS to tax. Realized = real transaction = recognition.
Community Discussion
No community discussion yet for this question.