17 T.C. 903, 1951 U.S. Tax Ct.
CASE SYNOPSIS: Respondent, the
Commissioner of Internal Revenue, determined that petitioner
taxpayers could not claim depreciation and expenses on real property,
and that they were not entitled to claim a net long-term capital loss
when they sold the property. The commissioner issued a notice of
deficiency in income tax to the taxpayers. The taxpayers filed a
petition with the court. The court conducted a trial.
FACTS: The taxpayer inherited a residence. The taxpayer spent $ 9,000 in redecorating the house, and moved into the house in 1940 with his wife and son. In October 1942, the taxpayer and his family moved from the residence. The taxpayer tried to sell the residence and to rent it. The taxpayer finally sold the residence in June 1945. The taxpayers claimed depreciation deductions on the residence and the expenses of maintaining the property. The taxpayers also claimed a capital loss when they sold the residence.
HOLDING:
The court held that the taxpayers could deduct the depreciation and the expenses of maintaining the residence pursuant to I.R.C. § 23(e)(2) (1939), but that they were not entitled to claim a capital loss on its disposition.
ANALYSIS:
The court held that in order for a loss to be deductible under I.R.C. § 23(e)(2) (1939), the taxpayers had to incur the loss in a transaction entered into for profit. The court held that because the taxpayers had used the property as a personal residence, in order to claim a capital loss, they had to do more than abandon the property and list it for sale or rent.
CONCLUSION: The court held for the taxpayers on the depreciation and the expense deductions. The court held for the commissioner on the capital loss. The court entered the decision under the applicable tax rule.
FACTS: The taxpayer inherited a residence. The taxpayer spent $ 9,000 in redecorating the house, and moved into the house in 1940 with his wife and son. In October 1942, the taxpayer and his family moved from the residence. The taxpayer tried to sell the residence and to rent it. The taxpayer finally sold the residence in June 1945. The taxpayers claimed depreciation deductions on the residence and the expenses of maintaining the property. The taxpayers also claimed a capital loss when they sold the residence.
HOLDING:
The court held that the taxpayers could deduct the depreciation and the expenses of maintaining the residence pursuant to I.R.C. § 23(e)(2) (1939), but that they were not entitled to claim a capital loss on its disposition.
ANALYSIS:
The court held that in order for a loss to be deductible under I.R.C. § 23(e)(2) (1939), the taxpayers had to incur the loss in a transaction entered into for profit. The court held that because the taxpayers had used the property as a personal residence, in order to claim a capital loss, they had to do more than abandon the property and list it for sale or rent.
CONCLUSION: The court held for the taxpayers on the depreciation and the expense deductions. The court held for the commissioner on the capital loss. The court entered the decision under the applicable tax rule.
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