Oregon Tax Consultants Practice Exam

What type of exchange includes tax implications on gains?

1. Non-taxable exchange

2. Like-kind exchange

3. Cash exchange

4. Personal property exchange

The correct answer is: Cash exchange

A cash exchange involves the transfer of assets along with cash or other property, which typically triggers tax implications on any gains realized from the transaction. In this scenario, when a property is sold and cash is received in addition to the property, the gain is recognized for tax purposes. This gain is calculated as the difference between the selling price and the basis of the property. In contrast, a non-taxable exchange, like-kind exchange, and personal property exchange may be structured in ways that allow deferral of tax liabilities under certain conditions. For instance, like-kind exchanges allow for the deferral of capital gains taxes when an investment property is exchanged for another similar property. However, in a cash exchange, the presence of cash received directly results in taxable income, making it distinct in terms of tax implications.