Final answer:
Taxpayers must exclude gains but include losses on the disposal of personal use assets from gross income.
Step-by-step explanation:
Taxpayers must exclude gains but include losses on the disposal of personal use assets from gross income.
When taxpayers sell or dispose of personal use assets, such as a car or personal property, any gains they make from the sale are excluded from their gross income. This means that the gains are not taxed. On the other hand, any losses from the sale of personal use assets are included in their gross income and can help reduce their overall tax liability.
For example, let's say a taxpayer sells a personal car for a higher price than they originally paid for it. In this case, the taxpayer would exclude the gain from their gross income and would not have to pay taxes on it. However, if the taxpayer sold the car for a lower price than they originally paid, it would result in a loss that they would have to include in their gross income, potentially reducing their overall taxable income.