Oregon Tax Consultants Practice Exam

A transfer on death is classified as which of the following?

1. A taxable gain

2. A deductible loss

3. Neither a gain nor a loss

4. A taxable event

The correct answer is: Neither a gain nor a loss

A transfer on death is classified as neither a gain nor a loss because it essentially allows assets to be passed directly to beneficiaries upon the death of the owner, without triggering immediate tax consequences. This mechanism is designed to simplify the inheritance process and avoid probate, ensuring that the beneficiaries receive the assets directly. This transfer does not result in a taxable event at the time of death; instead, the tax implications typically arise for the beneficiaries only when they sell the inherited assets in the future. Thus, this classification aligns with tax laws that aim to treat transfers upon death differently than regular transactions that could result in realized gains or losses at the time of transfer.