Butcher v. Commissioner , 37 T.C.M. 616 ( 1978 )

ROBERT E. BUTCHER and GLADYS K. BUTCHER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Butcher v. Commissioner

Docket No. 478-77.

United States Tax Court

T.C. Memo 1978-143; 1978 Tax Ct. Memo LEXIS 371; 37 T.C.M. (CCH) 616; T.C.M. (RIA) 780143;

April 13, 1978, Filed

---

Robert E. Butcher, pro se.

William F. Hammack, for the respondent.

---

FAY

MEMORANDUM FINDINGS OF FACT AND OPINION

FAY, Judge: Respondent determined a deficiency of $1,797.07 in petitioners' Federal income tax for their taxable year 1972.

We have been asked to decide whether petitioners may deduct under section 165(a) ^{*373 At the time they purchased the property, petitioners had no intention of using the residence or greenhouse attached thereto in a commercial manner. Nor have they realized any income from, or claimed depreciation on, either structure. With respect to the 4-1/2 acres surrounding the house, petitioners had hoped to, and subsequently did, sell portions of it at a profit. *374 disallowed the entire deduction.}

OPINION

The only issue for decision is whether petitioners are entitled to deduct a loss sustained by them on the demolition of their greenhouse.

Section 165(a) generally allows a deduction for any loss sustained which is not compensated by insurance or otherwise. This provision is limited in the case of an individual to only those losses which are incurred in a "transaction entered into for profit." Austin v. Commissioner,35 T.C. 221">35 T.C. 221 (1960), affd. 298 F.2d 583">298 F.2d 583 (2d Cir 1962), the taxpayer, in need of temporary housing for himself and his family, purchased some residential property which he thought could be resold later at a profit. This property consisted of 220 acres with a house and some smaller buildings.Several years later, during which time the taxpayer and his family occupied the house, the property was sold at a loss. This Court determined that the loss was not deductible because we found the taxpayer's primary motive in acquiring the property was personal, viz., to provide himself and his family with a residence. Our decision was later affirmed and in so doing the Second Circuit, in response to the taxpayer's argument that to support a loss under section 165 profit realization need only be a motive for the purchase of the property, stated:

But the position for which petitioners contend would not provide a workable interpretation of § 165. It is true generally of people who buy property for residential purposes that they are interested in making potentially profitable purchases. The statute makes no provision for the apportionment of the loss when a transaction is entered into both to satisfy a personal or family need and to make a profit. A primary motive of acquiring a family residence brings the purchase within the ambit of § 262 of the Internal Revenue Code, * * * which provides that "no deduction shall be allowed for personal, living or family expenses." The logical interrelation of § 165 and § 262 requires a decision as to which of the two motives was dominant, so that one or the other section can be applied. * * * [298 F.2d at 584.]

Thus, in reaching our decision in the present case, we must decide whether petitioners' acquisition was primarily motivated by personal considerations or to make a profit.

Undeniably petitioners' decision to acquire the Grosse Ile property was based in part on personal or family needs and in part because petitioners expected to later sell part or all of the property at a profit. However, of the two motives--personal and profit--we believe the evidence shows the predominant one to be the former. Specifically, petitioners had a large family and acquired the Grosse Ile property to accommodate their need for more living space. Shortly after its acquisition, petitioners moved into the residence located on the property and have occupied it since. Finally, petitioners have made no serious attempts to sell the residence or utilize it for any commercial purpose. In short, the evidence indicates that petitioners would not have even purchased the property except for their need for a larger residence.

Accordingly, because the acquisition ^{Decision will be entered for the respondent.}

---

Footnotes

• 1. All section references are to the Internal Revenue Code of 1954, as amended.↩

• 2. The dimensions of the greenhouse were 18 feet by 63 feet. ↩

• 3. The apartment was rented at the time petitioners purchased the property and at all relevant times thereafter. ↩

• 4. Subsequent to their moving in 1966, petitioners have owned no other property which could have been used by them as a residence.

  In addition, from the time of its acquisition to the time of trial, no serious attempt has been made to sell the house on the Grosse Ile property.↩

• 5. Approximately 1/3 of the acreage was sold in 1970 and 1/3 in 1971. The parcel sold in 1971 included the three-car garage and apartment. The family residence and greenhouse were located on the 1/3 of the acreage which was retained.↩

• 6. Petitioners do not allege that the loss was incurred in a trade or business or as the result of a casualty.↩

• 7. Even if we were able to find that petitioners possessed an initial↩ profit-making motive, we think the evidence would support the conclusion that such motive could not have continued to be a dominant one with respect to the property on which the greenhouse was located.