[kanba]

I saw a question on Becker that said Tax treatment of Loss on the sale of the family car should be ” Not deductible”. I wonder whether it should be recognized on Form1040 line 13 as individual capital loss and also on Sch D?

[Minimorty]

Losses on personal-use property items are not deductible.

https://www.irs.gov/taxtopics/tc409.html

[kanba]

I think the family car should be capital asset, so the loss of sale family car is capital loss. Individual capital loss can deduct up to $3000, so why this loss of sale family car cannot be deducted?

Minimorty, do you mean there is an exemption of capital loss thatloss on personal-use property are not deductible?

[Minimorty]

Correct. Was my post not clear? I even linked you to the IRS site that specifically states losses on family cars are not deductible.

[Yvonne570]

It's so frustrating going through this material with so many disagreements with the tax system:

1) Deductions on interest on equity loans (spent for luxuries or anything) – totally unfair – even for a vacation to Europe.

2) AMT – Lol, get rid of it for both IND and Corps.

3) Itemized deductions not allowed for interest on auto loans but yes on equity loans #1? Annoying. We need a car to work but we do not need to take a trip to Europe and ruin our equity situation.

Had to vent. Thanks.

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

[hopefulcpa28]

I SO agree. It is so confusing.

Capital losses are deducted up to $3000. Car is a capital asset, YET we can't deduct it. It's one of those WRAP 'em b/c you can't deduct them.

W: Wash Sales

R: Related Party

And

Personal losses

Btw, side question: Capital losses up to $3000 depends on AGI – Standard deduction (or itemized deductions), right? Before we take personal exemption. So if AGI – Standard deduction is lower than $3000, we can't capitalize it, correct?

[See Pee A]

@kanba: One thing that helped me while studying was thinking about the issue logically, in addition to the things I had memorized. Though it may not seem that way (especially with all the random arbitrary limits, phase-outs, etc.), tax law is somewhat logical for a lot of topics. Think of it like this, if I buy a $20,000 or $30,000 car, should I benefit from a tax perspective if I buy the $30k model (for personal use, anyway)? Of course not! We would have people living way outside of their means, even more than we already have.

Personal property is not deductible, and you can simply memorize that. But for things that appear to have some sort of reason behind them, I would strongly encourage you to try and remember a quick and brief example for them since it helps a lot with recalling when it comes to the actual exam. Good luck!

BEC 86 (08/30/11)
FAR 84 (10/13/11)
REG 88 (11/08/11)
AUD 86 (11/29/11)

Exam prep - Becker self-study

[Anonymous]

I totally agree with See Pee A. Memorization and mnemonics only got me so far. I would always try to think of the rationale behind a tax treatment, which was usually one of four things:

1. Ya gotta pay taxes on your income, even if you try to hide it

2. The IRS did something to shut down a technique someone came up with NOT to pay taxes on their income

3. IRS position reflects something that the government decided to support as a good thing (e.g. adoption credit, business expense deductions), or (related to 3.)

4. IRS position reflects some lobbying by a powerful interest group (e.g., treatment of rental income of real estate professionals, capital investment treatment)

[Anonymous]

Funny. If you sell your home at a loss, it is not deductible. But if you sell your home at a gain, you can exclude up to $250,000 of that gain ($500,000 if MFJ) if you lived in the home for at least 2 years. Ugh!! So nitpicky!!!!

[Minimorty]

@CPAMan – 2 of the last 5 years to be more specific.

[Anonymous]

Ugh!! Ok, I'm going to clean out all the questions on the Gleim test prep on this topic tonight to make sure I grasp this as this is another one of those topics that I find very difficult due to all its nitpicky little details. I need to master this stuff once and for all. This should be second nature to me, but it's not, unfortunately.

I don't know why people find Individuals easier than Entities. I find Individuals a lot more detailed and therefore, it requires more memorization. With Entities, there's a lot more concept involved and therefore, it's easier for me to see the big picture. So I have a better understanding of it.

[Yvonne570]

I'm in real estate and have my CRP license, which thank god! I am ahead with the real estate taxation and relocation moving expense/fringe benefits rules. With real estate, the taxable exemption of the gain on sale of a residential real estate is $250k given that the person resided in the home 2 out of 5 years. If married, and both parties resided the 2 out of the 5 years, then the exemption increases to $500,000 tax free gain on sale.

This is a huge benefit. However, there is an exception for the less than 2 years residing in the property. If they were required to move based upon out of control circumstances – such as in order to stay employed, they had to relocate with the company. Then that exclusion is “prorated” – so less than $250,000 but at least they are not heavily taxed. Typical of the IRS again, is that they often require us to report gains but not be able to deduct a loss. Real estate sale applies to this as well. The reason for the 2 out of 5 years was to prevent (along with the anti flipping HUD law) the abuse of tax avoidance of those investors who purchased for profit. Often would temporarily reside but move around. They wanted to keep this protection in place for more deemed to be valid home owners.

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

[Anonymous]

Yes, that's correct. I forgot about the pro-rating when you don't fulfill the 2 year requirement. I remember going over it just a few days ago, but it just slipped out of my mind. Ugh!! This is why REG is so hard. There's so many small details that it easily slips out of your mind. I wish I could go over a topic just once and retain the information. What is wrong with me??!! Argh!!! I need to pass this beast!

[Yvonne570]

LOL, here with you on that. And the law is so boring, my mind keeps rejecting it. LOL, like LIFO. Quit!

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

[Author]

Replies