Evening star. [volume] (Washington, D.C.) 1854-1972, 1928-07-28
US. COURT RULES
ON SALE OF HOME.
Loss on Residential Property
Used for Rentals Is Held
Deductible From Income.

The Supreme Court of the Unit d
States decided IN a recent case that
whenever residential property is no
longer used by its owner for that pur-
pose, but instead has been turned to
rental purposes. any loss sustained in a
subsequent sale of the property may be
deducted by the taxpayer in determin-
ing his net income, according to an
Interpretation by the National ASSocia-
ton Of Real Estate Boards. The deci-
sion was made in case relating TO the
sale of the residence of the late PHI
lander C. Knox Secretary of State I'M
der President Taft.
The District Court for the western
district Of New York has gone step
farther and has decided that wherever
residential property is abandoned for
the owners personal use as dwelling,
and due diligence is exercised in an ell
fort to rent the property. any loss sus-
tainec ~S:n s subsequent sale OF the
property may be deducted, whether or
not the owner succeeded in renting it.
These decisions revise what until re-
Gently has been a general understanding
I'm regard to the application of the in
come tax law to owned homes.
Taxes Deductible.
eral Law to deduct from his income tax
return payments made for interest or
taxes on his home On the other hand,
the income tax Law does not permit BIN
70 treat his residence property as If it
we're property from which he expected
to make an income or which he had
purchased to hold for resale at profit.
1t has been the general understanding
that in determining the amount of his
net income he could not deduct any loss
sustained from the sale of residential
property.
In view of the Supreme Court action.
the national association points out TO
purchasers of real estate for residential
purposes the ACCESSIBILITY that they have
in mind the probable further enhance
nlent in value of il and a sale of 1t at
q profit. and advises further that the
purchaser be able 10 show that he had
this in mind
The purchaser of a dwelling for resi-
Dental purposes usually does not over
look the fact that the exchange value of
his property may increase or diminish.
This the Supreme Court recognizes in
its recently expressed Gpinion," the as
ISOLATION holds
Whether the taxpayer who buys
property for residence purposes but who
at the same time has an eye TO posi-
bic increase in value, may, If he sells
at loss. deduct as he would in the
case of sale of income producing prop
erty. is left as an open question by the
Supreme Court opinion.
Knox Case Cited.
The question is an important point
for real estate. inasmueh as in many
a
the realtor handling the property can
show that the purchaser of residential
property had in mind not only the use
of it for residential purposes but also
the probability of its increasing In value.
In the case OF the Knox property
the court found that the residential use
of the property came to an end when 1t
was leased and that thereafter IL was a
property devoted exclusively to the pro-
tiuction of profit in the form of rentals
Notwithstanding the fact that
given property IS acquired for resi-
Dental purposes. if at any time after its
purchase the residential purpose is
given up and the property is devoted to
the production of income instead. any
loss sustained from the sale of the prop
ertv thereafter may be deducted from
the amount Of income on which taxes
are paid
The decision OF the Supreme Court
In regard TO the Knox property shows
clearly that II the owner sells his resi-
dental property while he is occupying
1t as a residence he may not deduct any
loss ne may sustain in the sale of it.
Under the late decision in the Dis
trict Court, IL due diligence Is exercised
IN the effort to rent the property. the
loss sustained from the sale may be
deducted