Personal Use Property

Personal use property is a type of property that an individual does not use for business purposes or as an investment. Quite simply, individuals use personal use property primarily for the purposes of their own enjoyment. 

Personal use property, such as homes, household appliances, vehicles, electronics or clothing, to name just a few, is not bought for the purpose of making money. Typically, personal use property is part of an individual’s daily life or routine. Conversely, the primary goal of investment property is for the purchaser to yield some sort of profit from its eventual sale. Common examples of investment property range from the obvious, like stocks and bonds, to lesser known property, like art and collectibles. Land can be an example of an investment property as well. 

What is and what is not personal use property can vary from tax jurisdiction to tax jurisdiction, particularly when it comes to determining whether a loss on the disposition of the asset is deductible. Typically, real estate receives different tax treatment, even if a home is for personal use. 

Technically, the Internal Revenue Service (IRS) considers personal use property a capital asset and does receive special tax treatment. Taxpayers cannot deduct losses on the sale of personal use property, while a gain on the sale of such property is subject to taxation.

One exception to the rule is the theft of and casualty losses on personal property; such losses are tax deductible, provided certain criteria are met. To be deductible, casualty losses must result from a sudden and unforeseen event. As the name implies, theft losses generally require proof that the property in question was actually stolen and not just lost or missing. Human activities, such as terrorist attacks and vandalism, are covered as well. 

The Internal Revenue Service only allows such deductions for one-time events that are out of the ordinary. For example, natural disasters would qualify, such as earthquakes, fires, floods, hurricanes and storms. A loss cannot be claimed for something that occurred over time. An example of this would be property erosion, because the process is gradual.

Casualty and theft losses are reported under the casualty loss section on Schedule A of Form 1040. They are subject to a 10 percent adjusted gross income threshold limitation, as well as a $100 reduction per loss. The taxpayer must be able to itemize deductions to claim any personal losses.