Court Opinion

ID: 4597031
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:18:19.946394+00
Date Added: 2024-06-11T07:51:43.526052
License: Public Domain

MINNIE L. CAMPE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Campe v. CommissionerDocket No. 30688.United States Board of Tax Appeals17 B.T.A. 575; 1929 BTA LEXIS 2286; September 26, 1929, Promulgated 1929 BTA LEXIS 2286">*2286  The petitioner purchased a certain tract of land in the year 1921, upon which she later built a residence and made other improvements.  She furnished and lived in the residence during the summer months of 1924 and 1925.  In 1925 she sold the entire property, including the furnishings and equipment, at a loss.  Held that the transaction was entered into for profit and that the loss sustained is deductible.  William M. Parker, Esq., for the petitioner.  Arthur Carnduff, Esq., for the respondent.  SMITH 17 B.T.A. 575">*575  The only issue is whether the petitioner is entitled to a deduction in her income-tax return for the year 1925 of a loss sustained upon the sale in that year of certain real and personal property under the circumstances hereinafter stated.  FINDINGS OF FACT.  The petitioner is an individual residing at Norfolk, Va.  She is the wife of A. E. Campe, of that city, who for several years has managed her business affairs.  On June 27, 1921, the petitioner purchased a tract of land consisting of approximately 32 acres situated on the Lynnhaven River, in Princess Anne County, Va., for a consideration of $7,500 cash.  17 B.T.A. 575">*576  At or about1929 BTA LEXIS 2286">*2287  that time there were several real estate development projects under way in the vicinity.  The Lynnhaven Country Club, a newly organized Jewish club sponsored by residents of Norfolk, Baltimore, and nearby places, had recently acquired a tract of several hundred acres immediately adjoining the petitioner's property.  This was the first important development project in the vicinity.  It became definitely known about that time that the main boulevard connecting Norfolk and Virginia Beach, which was about one mile from the petitioner's property, would be paved at an early date.  The petitioner's property was considered very desirable for country home sites or for the development of an exclusive suburban summer colony.  During the year 1922 the petitioner and her husband divided the property into lots or subdivisions suitable for home sites and endeavored to interest certain of their friends and acquaintances of means in purchasing the lots.  In March, 1923, the petitioner let a contract for the construction on the premises of a dwelling, which was completed in that year.  A barn, garage, and other outhouses were also constructed.  The total cost of these was $26,814.55.  Other improvements1929 BTA LEXIS 2286">*2288  were made, including landscaping, at a cost of $6,412.70.  The dwelling was furnished at a cost of $3,500.  Equipment costing $967 was added.  The land and improvements represented a total investment of $45,385.78.  The residence was built and furnished with the idea that it should be a model home and set a standard for the community.  The petitioner thought that a home of this type would be advantageous in gaining the interest of other prospective settlers.  The petitioner and her husband occupied the residence as a summer home during the months of July, August, and September of the years 1924 and 1925.  The premises were never at any time rented or offered for rent.  During these years the petitioner with her family maintained a home in the City of Norfolk.  The petitioner was unable ever to sell any of the lots in question, although considerable effort to do so was made during each of the years 1922, 1923, and 1924.  During the year 1925 the entire property, including the residence, was offered for sale and sold for $22,500.  In making the purchase of the land in 1921 and later in making the improvements, the petitioner acted upon the advice of her brother, Harry L. Lowenstein, 1929 BTA LEXIS 2286">*2289  an attorney and real estate operator of Norfolk.  At that time there was a decided real estate boom in progress in the vicinity and the petitioner expected to realize a substantial profit upon her investment.  In her income-tax return for the year 1925 petitioner claimed a deduction on account of the loss upon the sale of the above described 17 B.T.A. 575">*577  property computed upon the difference between its total cost and its selling price.  The amount of the loss claimed was greater than her reported income.  The deduction was disallowed in whole by the respondent on the ground that the loss was not upon a transaction entered into for profit, but was upon the sale of petitioner's personal residence and, therefore, not deductible under the loss provisions of the statute.  OPINION.  SMITH: Section 214(a)(5) of the Revenue Act of 1924 permits the deduction of losses sustained in the taxable year if incurred in any transaction entered into for profit.  We think that the facts here support the petitioner's contention that the loss upon the sale in 1925 of the property in question, both real and personal, comes within the provisions of the statute.  While it may have been the petitioner's1929 BTA LEXIS 2286">*2290  intention at one time to retain a part of the land purchased for her own use, the evidence discloses that it was her intention to sell the property for a profit as soon as such sale or sales could be effected.  In its entirety, the transaction has the appearance of the usual real estate or subdivision development so prevalent in this and other communities at that time.  The question of depreciation is not in dispute.  The parties have agreed that in case it is found that a deductible loss was sustained upon the sale of the property the usual rates of depreciation should be used in computing the amount of such loss.  Judgment will be entered under Rule 50.