Final answer:
The statement that a loss from the sale of a personal use asset remains disallowed after conversion to business use prior to its sale is false. If properly documented and substantiated, the portion of the loss attributable to the business use may be deductible. The process involves allocating the basis of the asset between personal and business use.
Step-by-step explanation:
The statement is false. Under tax law, a loss from the sale of a personal use asset is typically disallowed. However, if a taxpayer converts a personal asset to business or investment use before the sale, it is possible for them to recognize a loss based on its use during the time it was classified as a business or investment asset. To support this, the taxpayer must adequately document and substantiate the conversion and show that the asset was actually used for business purposes.
For instance, if you have a piece of equipment that was used for personal purposes and later started using it for your business, the portion of the loss attributable to the business use may be deductible when it is sold. This process can get quite complex, as it may involve allocating the basis of the asset between personal and business use, and different rules may apply depending on the type of asset and how long it was used for each purpose.
Therefore, while you can't deduct a loss on the sale of a purely personal-use asset, if properly converted to business use, some portion of the loss may indeed be deductible.