Once you have determined the type of property/asset you are dealing with you must determine use. There are four use classifications of property:
1. Personal-use property (not the same as personal type) is owned for personal use and enjoyment or living purposes. Items such as a primary residence, vehicle, clothing, household goods, recreational items, pets, etc, all are considered personal use property.
2. Investment-use property is property owned with a primary objective of increasing in value even though some current income may be generated. This classification includes things like land, collectibles like art or coins, capital stocks, bonds, and buildings not used in active rental.
3. Business-use property is used primarily for the immediate production of income. This includes factories, office buildings, rental houses, machinery, livestock, and equipment.
4. Stock-in-trade, also known as inventory, is property held for sale to customers.
Let’s look at some examples of type and use classifications:
The use of a piece of property is not set in stone. It can be converted from one type of use to another during it’s life.
Next week, determining the basis.