Oregon Tax Consultants Practice Exam

Which of the following statements is true about losses from the sale of personal use property?

1. Deductible under all circumstances

2. Not deductible unless related to a business

3. Deductible only if the property was gifted

4. Not deductible unless from a casualty or theft loss

The correct answer is: Not deductible unless from a casualty or theft loss

The correct statement regarding losses from the sale of personal use property is that such losses are not deductible unless they are classified as a casualty or theft loss. This is grounded in the tax regulations which treat personal use property, such as personal residences or vehicles, differently from business or investment property. Generally, losses incurred from the sale of personal use property do not qualify for tax deductions because the Internal Revenue Service (IRS) does not allow a deduction for losses on property that is primarily used for personal purposes. However, if the personal use property is lost due to a casualty event (like a natural disaster) or theft, those specific losses can be deducted on the tax return, provided that they meet certain criteria and are appropriately documented. In contrast, the other options misrepresent the treatment of losses from personal use property. Losses are not deductible in all circumstances, nor only if the property was a gift. The restrictions surrounding deductibility emphasize the IRS's aim to limit tax benefits to losses associated with business-related activities or extraordinary events.