What is a Personal Use Property?
Personal use property is a type of property or other asset that is not used by an individual for business purposes or as an investment. Quite simply, individuals use property of personal use primarily for their personal purposes and their own enjoyment.
- Personal use property is used for personal enjoyment as opposed to business or investment purposes.
- These can include personally owned cars, homes, appliances, apparel, food items, etc.
- Personal use property can be insured against theft in most homeowner policies, but this may require additional ridership or carry limits.
- Personal use property is treated differently for tax purposes than other types of property or assets.
Understanding personal use property
Personal use property, such as primary housing, home appliances, vehicles, electronics, or clothing, to name just a few, is not purchased for the purpose of making money. Typically, personal use assets are part of a person’s daily life or routine. In contrast, the primary goal of an investment property is for the purchaser to generate some kind of profit from its eventual sale. Investment property can also provide cash flow or income to the purchaser, such as dividend income or rental income. Common examples of investment property range from the obvious, such as stocks and bonds, to lesser-known assets, such as art and collectibles. Land can also be an example of an investment property.
What is and isn’t personal use property can vary from tax jurisdiction to tax jurisdiction, especially when it comes to determining whether damages on disposition of the property are deductible. Generally, real estate receives different tax treatment even if the home is for personal use.
Technically, the Internal Revenue Service (IRS) considers personal use property to be a capital asset and treats it differently from other types of property or assets. Taxpayers cannot deduct loss on sale of property of personal use, while profit on sale of such asset is subject to taxation.
Personal use property and theft and casualty damage
One exception to the rule is theft and casualty loss of personal property; Such losses are tax deductible, provided certain criteria are met. To be deductible, the accidental loss must result from a sudden and force majeure event. As the name implies, stolen damages generally require proof that the property in question was actually stolen and not simply lost or missing. Humanitarian activities, such as terrorist attacks and vandalism, are also covered.
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 hurricanes. Damage cannot be claimed for anything that happened over time. An example of this would be asset degradation, as the process is gradual.
Casualties and theft damages are reported under the Casualty Loss section on Schedule A of Form 1040. They are subject to a 10% adjusted gross income limit limit as well as a $100 reduction per loss. The taxpayer must be able to itemize the deduction in order to claim any personal loss.