Oregon Tax Consultants Practice Exam

In which situation is it allowed to claim a loss on personal use property?

1. When sold at a loss

2. When it is the primary residence

3. Following a casualty or theft

4. Never allowed

The correct answer is: Following a casualty or theft

Claiming a loss on personal use property is permissible following a casualty or theft because these events can significantly reduce the value of the property, making it eligible for a deduction on the tax return. When a casualty loss occurs, such as through a natural disaster, fire, or other sudden events, the IRS allows taxpayers to report the loss as a deduction, thus providing some relief from the financial impact. In cases of theft, the loss also qualifies for a deduction because the taxpayer has incurred a real financial loss due to the unlawful appropriation of their property. This is a specific provision under the tax code, allowing taxpayers to mitigate the adverse financial effects stemming from these unfortunate events. Although selling personal property at a loss or dealing with a primary residence may seem like potential opportunities for loss claims, these situations do not typically qualify under the current tax regulations. Personal property losses from a sale are generally not recognized for tax purposes unless they are related to investment properties, and primary residences have specific exclusions concerning losses. Therefore, the correct context of claiming a loss lies firmly within the allowances made for casualties and theft.