Upmeyer v. Commissioner ( 1931 )

WILLIAM H. UPMEYER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Upmeyer v. Commissioner

Docket No. 11641.

United States Board of Tax Appeals

22 B.T.A. 971; 1931 BTA LEXIS 2026;

March 31, 1931, Promulgated

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Upon the evidence held that the purchase by petitioner in 1910 of a house which he used as a residence was not a transaction entered into for profit and that upon its sale in a subsequent year at a loss no deduction is allowable.

Ernst Von Briesen, Esq., for the petitioner.

P. A. Bayer, Esq., for the respondent.

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MCMAHON

This is a proceeding for the redetermination of an asserted deficiency in income taxes for the calendar year 1922 in the amount of $1,124.42. It is alleged that the respondent erred in holding that the purchase by the petitioner in 1910 of a residence is not a transaction entered into for profit and that no deduction is allowable from gross income of the year 1922 on account of a loss sustained upon the sale of such property.

FINDINGS OF FACT.

The petitioner is an individual residing in Milwaukee, Wis. For over 50 years he has been in the jewelry business in Milwaukee. He has never been in the real estate business.

During the early part of 1910 petitioner lived at 523 Fourth Street, Milwaukee. At that time his family consisted of his mother, his three daughters, aged 20, 22 and 24 years, and his brother, Charles H. Upmeyer. His daughters returned from college and petitioner decided that a larger home was necessary. At that time he expected that his mother would not live many more years, that his brother might leave at any time, and that his daughters would get married, so he did not want to buy a permanent home. Petitioner met Marc Segnitz, a real estate dealer, who offered to sell him premises 3224 Wells Street for over $30,000, but petitioner purchased the property for $24,500 in October, 1910. The purchase was made from Mrs. D. Murphy. Petitioner paid $14,500 cash and gave a mortgage for the balance of $10,000. He was able to pay the entire amount in cash, but thought he could sell the property more easily if it were covered by a mortgage. The house had a large vestibule, a reception hall, a dining room, a music room, drawing room and kitchen on the first floor, six bedrooms and two bathrooms on the second floor, two maids' rooms, a bathroom and a dance hall 50 by 60 feet on the third floor, and a large attic. The size of the lot was 100 by 160 feet. The house just suited the size of petitioner's family at that time. Petitioner resided in the house continuously from 1910 to 1922.

Petitioner's mother died November 16, 1911. One of his daughters was married in May, 1914. Thereafter, petitioner found that the house was too large and tried to sell it.

An old friend of petitioner, a Mr. Remeus, who was also a prominent real estate dealer, tried to find a buyer, and had a "for sale" sign on the house for about a year. Petitioner did not like to have a sign on his house, so he had it taken down. He continued to try to find a buyer, but was unsuccessful in his attempts to sell at profit.

In 1917 the furnace broke down, and, since it was cheaper to install a new furnace than repair the old one, a new one was put in at a cost of $968.

Petitioner sold the house in 1922 for $15,000. He paid Remeus a commission of $750 and $15 for the abstract of title.

There were no material changes in the value of real estate in the locality of the property in question between 1910 and 1913.

The respondent refused to allow petitioner a deduction from gross income of 1922 of any loss sustained upon the transaction.

OPINION.

MCMAHON: The petitioner contends that he is entitled to a deduction from his gross income for 1922 of the amount of a loss sustained upon the sale in that year of a house located at 3224 Wells Street, Milwaukee, Wis. He contends that he purchased the property in question in 1910 with the idea of selling it later and that it constituted a transaction entered into for profit within the meaning of section 214(a)(5) of the Revenue Act of 1921.

From a consideration of all the evidence we are convinced that petitioner's primary purpose in obtaining the house in question was to use it as a residence. The fact that he bought it because he thought it was a bargain which he would be able to later sell at a profit does not affect the character of the transaction. Frequently in the purchases of residences the possibilities of resales are anticipated and, with that in view, the purchaser buys at as low a price as possible. We must hold that the transaction was not entered into for profit. See ; and . The respondent's determination is approved.

Judgment will be entered for the respondent.