“Personal-use property” (PUP) is defined generally, for income tax purposes, as property used primarily for personal purposes. So it includes things like your car, furniture, bicycles, clothes, appliances, and so on.
If you sell PUP at a gain, one-half of the gain will be included in your income as taxable capital gain.
Unfortunately, if you sell it at a loss, you cannot normally claim a capital loss. There is an exception for “listed personal property” (LPP), where a loss can be claimed, but only against LPP gains.
LPP is defined as:
- Artwork;
- Rare books or manuscripts;
- Jewelry;
- Stamps; and
- Coins.
If you have a loss from the sale of LPP, it can be used to offset any gains you have from the sale of other LPP, but not against gains from the sale of other personal-use properties. If, after claiming the loss, you still have a net gain, one-half of that will be included in your income as a taxable capital gain. If your loss exceeds any gain, the excess loss can be carried back three years or forward seven years to offset LPP gains in any of those years, but not gains from other property.
For all PUP, including LPP, there is a rule that says that your minimum cost and proceeds of disposition for capital gains or loss purposes are both $1,000. This is an arbitrary measure, meant to alleviate tax reporting for relatively minor dispositions and gains (or losses).
Example
I sell the following properties in 2022. My cost and sales proceeds are as follows:
Property 1: Cost $300, sales proceeds $700.
Property 2: Cost $800, sales proceeds $1,200.
Property 3: Cost $1,300, sales proceeds $900.
For property 1, since both the cost and sales proceeds are bumped up to $1,000, I do not have a capital gain for tax purposes, even though I made net $400 on the sale.
For property 2, my cost is bumped up to $1,000, so I will have a gain of $200, and half of that will be reported as a taxable capital gain.
For property 3, my sales proceeds are bumped up to $1,000, so I will have a $300 capital loss. However, as discussed above, I can claim this loss for tax purposes only if the property is LPP, and then only against gains from LPP.
