Oregon Tax Consultants Practice Exam

What occurs to personal use property after it's sold?

1. It can still generate tax liabilities

2. It can no longer incur losses

3. It is instantly reclassified

4. It must be depreciated

The correct answer is: It can still generate tax liabilities

The choice indicating that personal use property can still generate tax liabilities after it's sold is correct because even after a property has been sold, any gain realized from the sale may be subject to taxation. This can include capital gains taxes if the selling price exceeds the basis of the property. Additionally, if the property had appreciated in value while owned by the seller, that appreciation could potentially lead to tax liabilities at the time of sale. The other options do not accurately represent what happens when personal use property is sold. For instance, the notion that it can no longer incur losses does not fully capture the potential tax implications, as losses can still be realized in other contexts even if the property has been sold. The idea that it is instantly reclassified is misleading since the characterization of the property for tax purposes does not change just because of a sale, and it remains personal use property until and unless it is repurposed for business use or investment. Lastly, the requirement for depreciation applies only to business or income-producing properties, not personal use properties, thus making it incorrect in this context.