Court Opinion

ID: 9474205
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:50:40.806396+00
Date Added: 2024-06-11T17:43:57.445554
License: Public Domain

REINHARDT, Circuit Judge,
concurring and dissenting:
While I agree that the Bolarises are entitled to deferred recognition of the gain on the sale of their home under I.R.C. § 1034, I cannot agree that they are also entitled to take deductions under I.R.C. §§ 167 and 212 for the period during which they were attempting to sell that property. Under section 1034, deferred recognition of gain is allowed only if the property sold is the taxpayer’s “principal residence.” § 1034; Treas.Reg. § 1.1034-l(c)(3). On the other hand, under sections 167 and 212 deductions can be taken for depreciation and maintenance expenses only if the property is “held for the production of income.” 1 The two phrases are mutually exclusive as are the respective forms of tax treatment.
Courts have long recognized the difference between a residence and income producing property. It has been well-established law for over 40 years that deductions are not allowable under sections 167 and 212 for expenses incurred with respect to a taxpayer’s residence, whether principal or not. Brady v. Commissioner, 1983 T.C.M. (P-H) 1183,163, aff'd mem. 729 F.2d 1445 (3d Cir.), cert. denied, - U.S. -, 105 S.Ct. 569, 83 L.Ed.2d 509 (1984); Meredith v. Commissioner, 65 T.C. 34 (1975); Robinson v. Commissioner, 2 T.C. 305 (1943); Treas.Reg. §§ 1.167(a)-2, 1.212-1(h).
It would seem that the words of the statute as well as the interpretations of the courts compel the conclusion that if the sale of a “principal residence” results in a deferral of gain under section 1034, then the seller is barred from taking deductions under sections 167 and 212 for expenses incurred with respect to that property. Given the clarity of statutory language and the consistency of judicial interpretation, there would seem to be no reason to turn, as the majority does, to the legislative history.2
*1435In any event, the legislative history is plain and unambiguous.3 It states: “[t]he term ‘residence’ is used in contradistinction to ... property held for production of income.” H.R.Rep. No. 586, 82d Cong., 1st Sess. 109, reprinted in 1951 U.S.Code Cong. & Ad.News 1781, 1896. Thus, the legislative history confirms what we have already noted: “residence” and “property held for the production of income” are mutually exclusive terms.
The legislative history also states that the fact that the taxpayer rents out his old house may not, in light of all the facts and circumstances, be inconsistent with a finding that the old house is still the taxpayer’s residence. Id. See Treas.Reg. § 1.1034-1(c)(3). The majority seizes on the statement that the temporary renting out of a home does not deprive it of its character as the taxpayer’s principal residence. On the basis of this rather benign proposition and without any particular further explanation, the majority leaps to the conclusion that a taxpayer’s home can at once be both a residence and property held for the production of income. In fact, as has been demonstrated above, the legislative history provides compelling support for precisely the opposite conclusion. Contrary to the majority’s assertion, the proposition that “residence” and “income producing property” are antithetical terms is not novel: it has been advanced by the Commissioner and accepted by the Tax Court, either expressly or impliedly, on a number of occasions. See, e.g., Trisko v. Commissioner, 29 T.C. 515, 520 (1957); Stolk v. Commissioner, 40 T.C. 345, 353-54 (1963), aff'd mem. 326 F.2d 760 (2d Cir.1964); Daves v. Commissioner, 54 T.C. 170, 175 (1970); Barry v. Commissioner, 1971 T.C.M. (P-H) 1171,-179;4 Rogers v. Commissioner, 1982 T.C.M. (P-H) 1182,718.5
Moreover, a holding that the Bolarises cannot take deductions under sections 167 and 212 does not mean that they are not entitled to any deductions at all for expenses relating to their home. Under sections 163, 164, and 183(b)(1) the Bolarises were entitled to, and did, deduct in full the mortgage interest and real estate taxes that they paid. In addition, section 183(b)(2) authorizes the deduction of the depreciation and maintenance expenses to the extent that the income from the rental of the house exceeds the amount of the mortgage interest and real estate tax payments. It is only because the Bolarises’ rental income was less than the amount of those payments that they cannot deduct at least some portion of the maintenance and depreciation expenses they incurred.6
Because I believe that the judgment of the Tax Court should be affirmed in its entirety, I respectfully dissent.

. A deduction may also be taken if the property is used in a "trade or business,” but as the parties agree, that provision is inapplicable here.

. See Focht v. Commissioner, 68 T.C. 223, 244 (1977) (Hall, J., dissenting): "It has been said, with more than a grain of truth, that judges in *1435tax cases these days tend to consult the statute only when the legislative history is ambiguous.”

. Cf. Bluff v. Father Gray (H.L.) per Lord Mildew: "If Parliament does not mean what it says it must say so.” (Quoted in A.P. Herbert, The Uncommon Law: The Employment Tax (1935)).

. While it appears that in Trisko and Barry the taxpayers were allowed to take certain deductions for depreciation as well as take advantage of § 1034, neither case held that a taxpayer can take deductions under §§ 167, 212 when § 1034 is also applicable. First, in neither case did the Commissioner challenge the taking of the deductions; rather he challenged only the availability of § 1034. In the case before us, of course, the Commissioner is challenging both. Second, in both Trisko and Barry the court explicitly held that the taxpayers’ old house was not held for the production of income. The Bolarises, however, will be entitled to deductions under §§ 167, 212 only if their old house was held for the production of income. Trisko and Barry both stated that § 1034 was not applicable if the taxpayers' old house was held for the production of income.

. The majority relies heavily on Robinson, supra, in reaching its conclusion. However, Robinson merely holds that if the taxpayer has actually abandoned his residence, the property can then become property held for the production of income. Thus, it provides no support for the majority’s conclusion. It follows therefore that there is no validity to the majority's theory that the existence of Robinson at the time Congress enacted § 1034 demonstrates that Congress intended homeowners to receive the benefit of both § 1034 and §§ 167, 212 simultaneously.

. For a fuller explanation of the somewhat complicated workings of § 183(b), see Judge ¡Corner's concurrence in the Tax Court’s opinion in this case, 81 T.C. at 850-52.