AI Tax-Loss Harvesting and Rebalancing Quiz

Answers and explanations appear as you take the quiz.

1. Under IRC Section 1091, what window does a harvesting engine have to watch around a loss sale?
   • 30 days before and 30 days after the sale
   • Only the 30 days after the sale
   • The rest of the calendar year
   • 60 days after the sale only
2. A client harvests a loss in a taxable account, and a week later the same fund is bought in the client's IRA. What happens to the loss?
   • It is added to the basis of the IRA shares
   • It is permanently disallowed
   • It is allowed because IRAs are separate accounts
   • It is deferred until the IRA is withdrawn
3. Why does the guide say harvesting usually defers taxes rather than eliminating them?
   • The IRS reverses harvested losses after five years
   • Replacement securities are always taxed at higher rates
   • Buying the replacement lowers the portfolio's cost basis, so more gain is taxed on a later sale
   • Losses can only offset losses
4. How much net capital loss can offset ordinary income each year, according to the guide?
   • $1,500
   • $10,000
   • Unlimited
   • $3,000
5. What is 'loss harvesting decay' in a direct-indexing account?
   • Losses that expire if not used within three years
   • Fewer lots sitting below cost as markets rise over time
   • Slower trade execution as the account grows
   • Tracking error that increases every year
6. When a direct-indexing engine sells one bank stock at a loss, how does it usually choose the replacement?
   • It buys the same stock back after 31 days in all cases
   • It buys the index ETF the account is benchmarked to
   • It picks the stock with the largest recent loss
   • It picks a stock with similar sector and factor exposure to keep tracking error low
7. Which common account setting can trigger a wash sale without anyone noticing?
   • Automatic dividend reinvestment
   • Paperless statements
   • Two-factor login
   • Monthly rebalancing alerts
8. What does tax-aware rebalancing do first to bring an underweight position back to target?
   • Sells the biggest winners
   • Buys the underweight position with new deposits or dividends
   • Moves the position into an IRA
   • Waits until year-end to rebalance everything