An Insight into Personal Use property
Uncle Sam defines personal use property as an asset or property used solely for private purposes and does not serve as an investment or business purpose. In other words, these are properties that individuals use for their personal life and enjoyment.
A few examples of personal-use property are household appliances, primary place of abode, electronics, vehicles, clothing, etc. A personal use property is typically part of the daily life and routine of an individual.
On the other hand, the idea behind an investment property is for the owner to generate income, profit, or yield from it. A few examples of investment properties are the obvious ones like bonds and stocks, which are pretty obvious, and the less obvious ones like collectibles, arts, etc. A vehicle used for transportation business and land might be considered an investment property.
The definition and classification of what fits a personal-use property and what does not, differs with various tax jurisdictions and becomes extremely helpful in determining if the loss on the asset's disposition will be deductible. Generally, the tax on real estate is different even if the home was for personal use.
Uncle Sam believes that a personal-use property is technically an asset that does not qualify it for any particular tax treatment. As a result, taxpayers cannot deduct losses when they sell a personal use property even though they will pay taxes for any gain on personal-use property.
Casualty and Theft losses on personal-use property
There is an exception to the casualty and theft losses rule for personal-use property. The losses can only be deducted from a tax if some criteria are met. For such losses to be deducted, such casualty losses must result from an unexpected and unpredicted event. There must be proof that the particular property was not misplaced or lost but indeed stolen. There are provisions for human activities like vandalism and terrorist attacks. `
Uncle Sam allows deductions for such events as long as they are not ordinary. For instance, natural disasters are events that qualify, such as fires, floods, tsunamis, earthquakes, storms, and hurricanes. You cannot claim a loss for damage that occurred with time, like a degradation due to rust, since the process was gradual.
There is a casualty loss section in Form 1040, Schedule A, where taxpayers can report their theft and casualty losses. Also, there is a 10% AGI (Adjusted Gross Income) limitation alongside the $100 reduction per loss. To claim personal losses, the taxpayer should be able to itemize deductions.
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Don Bell Law