If a person contributes personal property to a public charity and the property is sold for less than its fair market value, how is that loss treated for tax purposes?

When a person donates personal property to a public charity, the treatment of any loss when the property is sold by the charity at less than its fair market value is significant in understanding how tax deductions are handled. In this scenario, the correct answer is that the loss is treated as a capital loss.

When personal property is donated, the donor does not get to claim a loss on their tax return for the difference between the fair market value and the sale price. However, if the donated property was held for investment, any loss realized when sold by the charity can indeed be characterized as a capital loss. This is because the Internal Revenue Code generally treats losses related to the sale of capital assets in this manner.

For further clarity, the other options imply different treatments that do not align with IRS guidelines regarding charitable contributions and loss recognition. A personal loss is not deductible under IRS rules, and losses are not deductible against ordinary income when they occur in the context of a charitable donation. Additionally, claiming no deduction for the loss contradicts the rule that capital losses can still be recognized, albeit under specific conditions.

In summary, when personal property is contributed and a loss occurs during its subsequent sale by the charity, it is properly recognized as a capital loss for tax purposes