Oregon Tax Consultants Practice Exam

Under what condition are losses from the sale of personal use property deductible?

1. They are always deductible

2. Only if the property was inherited

3. Only if there is a casualty or theft loss

4. If sold for less than the purchase price

The correct answer is: Only if there is a casualty or theft loss

Losses from the sale of personal use property are generally not deductible under federal tax law, as they are considered personal losses. However, exceptions exist, particularly when there is a casualty or theft loss that impacts the property. In instances where personal property is damaged or destroyed due to unexpected events, such as natural disasters or theft, taxpayers may claim a deduction for the loss incurred. This is because casualty and theft losses are treated differently from typical transactions involving personal use property. They are evaluated based on the decrease in fair market value or the adjusted basis of the property at the time of loss, thereby providing a way for taxpayers to receive some recovery. Recognizing losses strictly from sales or transfers—like selling personal-use property for less than its purchase price—does not qualify for tax deductions in the same manner. Personal losses due to sales are typically disallowed unless they fall under the specific provisions concerning casualty or theft losses. This is why the condition pertaining to casualty or theft loss is significant in determining the deductibility of losses from personal use property.