If you sell a personal-use property (PUP) at a gain, one-half of the amount is included in your income as a taxable capital gain.
On the other hand, if you sell a PUP at a loss, the loss is not allowed for income tax purposes (except in the case of “listed personal property”, as explained below).
PUP includes property that is primarily used for personal purposes. Thus, it can include your home, car, bicycle, furniture, clothing, and so on.
If the PUP is listed personal property (LPP), any loss is deductible against gains from other LPP, but not other gains. If the net result is a positive gain, one-half is included in your income as a taxable capital gain.
If the losses from LPP exceed the gains from LPP in a year, the losses cannot be applied against other income. However, the excess LPP losses can be carried back three years or forward seven, to offset capital gains from other LPP.
Example of LPP
In 2020, you sold an LPP at a gain of $2,000. You also sold another LPP at a loss of $3,000.
In 2019, you sold an LPP at a gain of $700.
Your net gains from the LPP for 2020 will be nil. Of the excess $1,000 losses, $700 can be carried back to offset the LLP gain in 2019. That leaves $300 LPP losses that can be carried forward.
What is LPP?
LPP is defined as:
- Rare books and manuscripts
Minimum thresholds for PUP
For all PUP, whether LPP or not, there are deemed minimum proceeds of disposition and cost of the property. Each is a minimum of $1,000, regardless of the actual cost or proceeds.
For example, if you sell a painting for $2,000 and your cost was $800, your capital gain will be $1,000 ($2,000 minus the deemed cost of $1,000) and your taxable capital gain will be $500.
As another example, if you sell some jewelry for $800 and your cost was $500, you will have no capital gain, since your deemed cost and proceeds will be both bumped up to the minimum amount of $1,000.