Court Opinion

ID: 4623076
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:52:10.417668+00
Date Added: 2024-06-11T07:56:17.874964
License: Public Domain

RICHARD LOPER AUSTIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Austin v. CommissionerDocket No. 24460.United States Board of Tax Appeals17 B.T.A. 801; 1929 BTA LEXIS 2240; October 8, 1929, Promulgated *2240  Petitioner held not entitled to the deduction of a loss resulting from the sale in 1922 of residential property used exclusively as his personal residence.  Richard Loper Austin pro se.  W. F. Gibbs Esq., for the respondent.  SMITH *801  This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1922 in the amount of $738.24.  The question at issue is the amount of the deductible loss, if any, sustained by the petitioner upon the sale of residential property.  FINDINGS OF FACT.  The petitioner is an individual residing at Philadelphia, Pa.  He is an officer of the Federal Reserve Bank, of which he was appointed chairman in 1914.  During the year 1901 he purchased a certain tract of land consisting of about two acres located at Chestnut Hill, a residential suburb of Philadelphia, near the intersection of Seminole and Rex Avenues.  It had a frontage of about 200 feet on Seminole Avenue and about 400 feet on Rex Avenue.  At that time there were no buildings or other improvements on the property.  Later on the petitioner purchased two adjacent tracts of land, one about the year 1904 and the other in 1918. *2241  The total cost to the petitioner of the entire tract was $29,250.  It had a good elevation and was well situated for a fashionable residence site.  During the year 1904 the petitioner built a stable on the premises costing $7,000.  The stable was of stone construction and had space for four carriages, three horses, and a cow.  It had an upstairs with two bedrooms and a bath, and a storage room.  The petitioner also built a macadamized roadway through the property and made other improvements costing $6,000.  At that time the petitioner lived across the street on the northeast corner of Seminole and Rex Avenues in a rented house.  He had been living there for about six years.  He kept a horse and cow in the newly built stable.  During the year 1909 the petitioner began the construction of a residence on the property which was completed in 1910 at a cost *802  of $87,500.  The exterior construction was of native Germantown stone trimmed with Indiana limestone.  The same material was used in building the stable.  Lumber of fine quality, imported from West Virginia especially for the petitioner and seasoned for three years after cutting, was used for the interior woodwork.  *2242  Soon after its completion the petitioner with his wife and daughter, about five years of age, moved into the residence and the petitioner occupied it until the year 1922.  The petitioner's wife died in August, 1912.  Thereafter, he and his daughter continued to occupy the residence with other relatives who left in 1914.  At or about that time the petitioner offered his residence for sale.  He had lost interest in it as a home and wished to move with his daughter into the city.  In January or February of that year he sold the entire property for a consideration of $101,850.  This was the first offer that had been made on the property.  The fair market value at March 1, 1913, of the property acquired prior thereto was not less than its cost to the petitioner.  The entire cost of the property to the petitioner was $129,750.  In his return for the calendar year 1922 the petitioner claimed a deductible loss upon the sale of the property in question of $48,150, representing the difference between its sale price and its estimated value of $150,000 at March 1, 1913.  The excess of the cost of the property over its sale price was $27,900.  The respondent has disallowed the deduction of*2243  the alleged loss of $48,150 on the ground that the loss, being upon the sale of the petitioner's personal residence, is not an allowable deduction under the statute.  In determining the deficiency herein asserted the respondent has taxed petitioner upon a net income of $13,577.55.  OPINION.  SMITH: The evidence of record in this proceeding shows that the petitioner, who in 1901 was living in a rented house at Chestnut Hill, a residential suburb of Philadelphia, saw an opportunity to purchase a tract of land at what he considered a bargain price.  He purchased the land and expected in the future to build a residence thereon.  Eventually he built his residence upon the tract, according to his own plans and desires and lived in it for a long period of years.  His wife having died in 1912, and he not desiring to keep the property, offered it for sale in 1914.  It was not, however, until 1922 that he had an opportunity to sell it at what he considered a fair price and sold it for $27,900 less than cost.  In his income-tax return for 1922 he claimed as a deduction from gross income the difference between the sale price and the fair market value of the property on March 1, 1913, such*2244  difference amounting to $48,150.  The respondent *803  has disallowed the deduction upon the ground that the deduction is not authorized by the applicable section of the taxing act, which is section 214(a)(5) of the Revenue Act of 1921.  This section provides in part as follows: (a) That in computing net income there shall be allowed as deductions: * * * (5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business * * *.  The question is whether the transaction was one "entered into for profit" within the meaning of the provision of the law above quoted.  The petitioner testified that at the time of the original purchase of the land and subsequent thereto he believed that if he ever desired to sell the property he could sell it advantageously and that that was his reason for purchasing the identical property.  At the hearing the petitioner testified as follows: The Member: Mr. Austin, when you purchased the land in 1901, and when you built the residence in 1910, was it your expectation during each of the years and during the*2245  intervening period to occupy this property during your life?  The Witness: I had no immediate intention of selling it then, but I had the intention to occupy it as long as agreeable, and thought I would have no difficulty in disposing of it should I so desire.  Mrs. Austin and my daughter were still with me in those years, and we did not know what would happen.  I was getting along, and I felt we could occupy it as long as we wanted to and have no difficulty in selling it.  The Member: If I understand your testimony, it is to this effect: You saw this land here, and thought it would be an excellent location for a residence The Witness: Yes, sir.  The Member: * * * You thought it would increase in value, and if you ever did want to sell it, you could make a profit on it?  A.  Yes, sir.  We are of the opinion that the petitioner did not acquire this property in the first instance with an intention of making a profit from the sale thereof.  It was his desire to build his future residence upon it and he built such a residence in accordance with his own desires.  After the death of his wife he tried for many years to sell it and finally did sell it in 1922 at*2246  a loss as indicated in our findings.  From a consideration of the entire record we are of the opinion that the transaction was not one entered into for profit within the meaning of section 214(a)(5) of the Revenue Act of 1921.  The facts in this case are not substantially different from those which obtained in , affirmed by the Circuit Court of Appeals for the First Circuit in . Reviewed by the Board.  Judgment will be entered for the respondent.