Willcox v. Commissioner

Westmore Willcox and Esther J. Willcox, Petitioners, v. Commissioner of Internal Revenue, Respondent Willcox v. Commissioner Docket No. 37382 United States Tax Court 20 T.C. 305; 1953 U.S. Tax Ct. LEXIS 167; May 8, 1953, Promulgated *167 Decision will be entered under Rule 50. Deduction -- Loss -- Transaction Entered into for Profit -- Residence -- Temporary Occupancy -- Section 23 (e) (2). -- Loss on the sale of a residence, obtained in a transaction entered into for profit but temporarily occupied by the owners who had a permanent home elsewhere, is deductible under section 23 (e) (2) since the investment character of the property never changed. James E. Bennet, Jr., Esq., for the petitioners. S. Jarvin Levison, Esq., for the respondent. Murdock, Judge. MURDOCK *305 The Commissioner determined a deficiency of $ 2,230.39 in the income tax of the petitioners for 1946. The only issue for decision is whether a loss sustained upon the sale of 146 East End Avenue, *168 New York, is a loss from a transaction entered into for profit or is a nondeductible loss because it was from the sale of a personal residence. FINDINGS OF FACT. The petitioners, husband and wife, resided at 142 East End Avenue, New York, New York and filed a joint return for 1946 with the collector of internal revenue for the second district of New York. The petitioners and their two children moved from Boston to New York and purchased in 1928 premises known as No. 142 East End Avenue in New York, made extensive repairs thereto, and began to occupy it as their permanent residence. The property had a frontage of approximately 28 feet on the street, was 4 stories high, and cost the petitioners about $ 150,000. They purchased the adjoining premises at Nos. 144 and 146 East End Avenue in 1929, each of which had a frontage of 18 feet on the street and was improved with a 3-story brick house. The cost of No. 146 to the petitioners was $ 75,871.63 and the cost of No. 144 was about $ 500 more. The purchases of Nos. 144 and 146 were transactions entered into by the petitioners for profit. *306 The two houses at Nos. 144 and 146 were thereafter rented by the petitioners, sometimes *169 furnished, sometimes semi-furnished, and sometimes unfurnished. Westmore resigned in the latter part of 1941 from the brokerage firm of which he was a partner. His son was about to enter the war and he wanted to have a part in the war effort also. He had a position in Washington with a British Mission from November 1941 until about July 1943, but continued to live at 142 East End Avenue, returning there over weekends. The Mission did not need him further and he could not afford the expense of living in one city and working in another so he returned to New York and started to look for a job. The premises at 146 East End Avenue became vacant about that time and the petitioners decided for financial reasons to rent their home at 142 for $ 500 a month to a wealthy friend who knew the petitioners' home and wanted to rent it furnished just as it was. The petitioners had an oral agreement with this friend that he would vacate the premises whenever they decided to occupy No. 142 again as their residence. Actually, No. 142 was rented to this friend from October 1943 until October 1, 1946, at the same rental. The petitioners began to occupy the premises at 146 East End Avenue as their residence*170 in August 1943. They did not move any of their possessions from 142 to 146. Westmore went to India about the end of June 1945 as Chief of the Lend-Lease Mission. His wife joined him shortly thereafter and they remained there for 9 months during which the premises at 146 East End Avenue were unoccupied. The petitioners returned to the United States in May 1946 and again took up their residence at No. 146 East End Avenue. They wanted to get back into their home at 142 and notified their tenant friend on or before June 21, 1946, that they would be moving back into No. 142 on October 1, 1946, and would not renew the lease. The petitioners at all times material hereto were desirous of selling the premises at Nos. 144 and 146 if they had been able to obtain a satisfactory price. They wrote a letter dated February 6, 1945, to the real estate broker who had been renting their properties that they were desirous of selling them and mentioned possible prices in the letter. They offered Nos. 144 and 146 for sale to their tenant friend in No. 142 in a letter dated June 21, 1946. They offered to sell the premises at No. 144 to William A. Read, who was renting those premises, but when he *171 did not accept the offer they sold those premises to another party in August of 1946. Shortly thereafter they sold the premises at No. 146 to Read. The sale took place in August but the petitioners continued to occupy that house until October 1 when they moved back to their permanent home at No. 142. *307 The sale of the property at 146 East End Avenue resulted in a loss to the petitioners of $ 21,703.58. That loss is deductible under section 23(e) (2) as a loss incurred in a transaction entered into for profit not connected with the petitioner's business. OPINION. The petitioners bought and improved the property at No. 142 East End Avenue for the purpose of making it their permanent home. They have resided therein from 1928 until the present time, except for a period of 3 years during World War II when it was rented completely furnished to a friend for $ 500 a month with the understanding that it would be vacated whenever they wanted to reoccupy it as their home. The two other houses at Nos. 144 and 146 were not bought for the purpose of occupying them as a residence but were bought solely for the purpose of holding them for profit. The petitioners had some extra house *172 furnishings and they rented the two 3-story houses furnished, semi-furnished, and unfurnished, the one at No. 144 until it was sold in 1946, and the one at No. 146 until October 1943. The petitioners' income was much smaller in 1943 than it had been previously. Westmore was looking for profitable employment and the petitioners decided as a temporary measure to rent their home at No. 142 in order to receive income from that larger property while they occupied the smaller property at No. 146. They were away from New York from the middle of 1945 until May 1946, and, after the termination of the war, they decided to return to their permanent residence at No. 142 and to sell the other two properties, which they did. The Commissioner contends that the deduction for the loss should be denied because the petitioners were occupying No. 146 as a residence immediately prior to the sale. The evidence shows, however, that No. 142 remained throughout their residence and No. 146, which they occupied only temporarily during a part of the war period, retained its character as a property in which they had invested for profit. The facts present a stronger case for the present petitioners than those*173 in several prior decisions where deductions were allowed on the sale of houses once occupied as a residence by the seller. Helen Converse Thorpe, 3 B. T. A. 1006; Sidney W. Sinsheimer, 7 B. T. A. 1099; John N. Hughes, 8 B. T. A. 206; Henry J. Gordon, 12 B. T. A. 1191; W. W. Holloway, Administrator, 19 B. T. A. 378; Marjorie G. Randall, 27 B. T. A. 475. The petitioners are entitled to deduct the loss under section 23(e)(2). Decision will be entered under Rule 50.