CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsMedium
A client, Mr. Rodriguez, sold his personal automobile for $15,000. He had purchased it for $25,000 five years ago. What is the tax treatment of this transaction?
- AA $15,000 capital gain.
- BNo gain or loss recognized.
- CA $10,000 capital loss.
- DA $10,000 ordinary loss.
Show answer & explanationAnswer & explanation
Correct answer: B. No gain or loss recognized.
Losses on the sale of personal-use property are generally not deductible. Gains on the sale of personal-use property are taxable as capital gains, but in this case, Mr. Rodriguez sold the car for less than he paid for it, resulting in a loss.
Why the other options are wrong
- A. This option is incorrect; there is a loss, not a gain, and it's not a capital gain in this scenario.
- C. This option is incorrect because losses on personal-use property are not deductible as capital losses.
- D. This option is incorrect because losses on personal-use property are not ordinary deductible.
Sale of Personal-Use Property
Gains from the sale of personal-use property (e.g., personal residence, car) are taxable as capital gains, but losses are generally not deductible.
- Gains are taxable (capital).
- Losses are not deductible.
- Property must be held for personal use, not for business or investment.
Memory trick: Personal Property: 'Gain is Taxed, Loss is Gone.'