There are specific rules that apply to gains and losses from dispositions of personal-use property (PUP). For these purposes, PUP is generally defined as property that is used primarily for personal use by the owner of the property or a related person. PUP includes property such as your personal-use furniture, clothing, jewellery, cars, bicycles, computers, and even your home.
One of the main rules regarding PUP is that a capital loss on the disposition of the property is deemed to be zero (i.e. the loss is denied), unless it is a special category of PUP called “listed personal property” (LPP). Losses from LPP can offset gains from LPP, but not gains from other PUP or other properties.
If there is a net gain from LPP in a year, half is included in income as a taxable capital gain. If there is a net loss in the year, it cannot be used in that year. However, it can be carried back 3 years or forward 7 years to offset gains from only LPP in those years.
I sell some jewellery (which is LPP) in 2019 at a loss of $3,000. I have a $3,200 gain on a piece of art (also LPP) in 2020. I can carry forward the 2019 loss to 2020, which will leave a net $200 gain. One-half of that, or $100, will be included in my 2020 income as a taxable capital gain.
If the gain in 2020 was from a PUP that was not LPP, the 2019 loss could not offset the gain. In such case, I would have a $1,600 taxable capital gain in 2020.
Definition of Listed Personal Property
As noted, only losses from LPP can be utilized for tax purposes, and only against gains from LPP.
LPP is defined as:
- art, such as paintings and sculptures;
- rare books, manuscripts and portfolios;
- coins; and
For all PUP, whether LPP or not, there is a general rule that states that the minimum cost and minimum proceeds of PUP for capital gains purposes is $1,000. The rule is meant to alleviate record-keeping and reporting of gains and losses of nominal amounts in respect of PUP.
The rule ensures that you can have a gain on PUP only if the proceeds exceed $1,000, and that you can have a loss on PUP only if the cost is more than $1,000. In some cases, you will neither have a gain or a loss.
You sell the following PUP, with your cost and sales proceeds as follows:
Furniture 800 1,200
Bicycle 1,100 700
Painting 800 500
Because of the $1,000 minimum cost rule, your gain on the furniture will be $200, and half of that will be a taxable capital gain.
Your loss on the bicycle will be $100 (due to the minimum proceeds of $1,000), but it will be denied because it is not LPP.
You will have no loss or gain on the painting (deemed cost and proceeds are both $1,000).