Quinn v. Comm'r of Internal Revenue , Docket No. 8935-72.
| Decision Date | 08 December 1975 |
| Docket Number | Docket No. 8935-72. |
| Citation | 65 T.C. 523 |
| Parties | EDWARD C. QUINN, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Michael J. Christianson, for the petitioner.
Petitioner and his former wife acquired a house in Grosse Pointe Woods, Mich., in 1950 at a total cost of $51,065. Pursuant to a property settlement in May 1967 petitioner received sole ownership of the residence. Petitioner abandoned the residence in late 1967 and placed it on the market in January 1968 at a price of $65,000. The house was sold in April 1969 for $65,000. Held, petitioner is not entitled to deductions for depreciation and maintenance expense with respect to the house for the years 1968 and 1969 because the house was not held for the production of income.
Respondent determined deficiencies in petitioner's income taxes for the taxable years 1968 and 1969 in the amounts of $3,561 and $358, respectively. The only issue for our determination is whether petitioner is entitled to maintenance and depreciation deductions with respect to his former residence for the time between the date he ceased using the property and the date of its sale.
Some of the facts have been stipulated and the stipulation of facts, together with the exhibits attached thereto, are found accordingly.
Edward C. Quinn (hereinafter petitioner) resided in Santa Ana, Calif., at the time the petition herein was filed. Petitioner timely filed 1968 and 1969 Federal income tax returns with the District Director at Los Angeles, Calif. 1 In December 1970 petitioner filed an amended 1969 return.
In 1950 petitioner and his former wife acquired a house in Grosse Pointe Woods, Mich., for $37,250. Shortly before or after moving in, petitioner added improvements to the house at a cost of $13,815. This house served as petitioner's personal residence from 1950 until the fall of 1967.
Grosse Pointe Woods is an exclusive suburb of Detroit. Although the housing market in Detroit fluctuates according to the fortunes of the automotive industry, the homes in Grosse Pointe Woods generally appreciated in value over the period from 1950 to 1969. Due to comparatively high prices, however, there is a limited market for homes in this community.
Petitioner and his former wife were divorced in May 1967. Pursuant to the divorce decree petitioner was awarded sole ownership of the house. For purposes of the property division between petitioner and his former wife the house was valued at $50,000. This figure was based upon an estimate provided by the Manufacturer's National Bank in Detroit and was acceptable to both petitioner and his former wife.
Petitioner married his present wife, Barbara Quinn (hereafter Barbara), on May 29, 1967. At the time of their marriage Barbara was living in Corona Del Mar, Calif. Following their marriage, petitioner and his new wife traveled to Africa. Upon their return from Africa, in the fall of 1967, petitioner and his wife decided to make California their home. They initially stayed in a house owned by Barbara but later built a new house. By January 1968 petitioner's move from Michigan to California was complete.
Petitioner contacted several realtors regarding the sale of his house in Grosse Pointe Woods in January 1968. Petitioner did not list the house with any one realtor because the realtors in that area did not use multiple listings and he believed that competition among several realtors would stimulate the market for the house. Manufacturer's National Bank advised petitioner that $65,000 would be a reasonable price for the house and petitioner informed the realtors that he would not be willing to sell for less than that amount. Petitioner fully expected that he could sell the house for $65,000 and he was determined not to sell for less.
Petitioner took steps to insure that the house would be presented in a favorable light. He left it furnished and purchased some new furniture to replace items that had been removed by his former wife. He hired a caretaker to keep the house clean and orderly and to be available to show the house to potential buyers. The house was not offered for rent because petitioner did not want to subject the house to additional wear and tear.
Petitioner received several offers below the $65,000 asking price, but being under no financial pressure to sell he rejected all such offers. In April 1969 petitioner sold the house for $65,000.
For the years 1968 and 1969 petitioner claimed maintenance and depreciation deductions with respect to the house in Grosse Pointe Woods as follows:
+--------------------------------------+
¦ ¦1968 ¦1969 ¦
+------------+------+------------------¦
¦ ¦ ¦(amended return) ¦
+------------+------+------------------¦
¦ ¦ ¦ ¦
+------------+------+------------------¦
¦Maintenance ¦$3,931¦$1,454 ¦
+------------+------+------------------¦
¦Depreciation¦2,092 ¦697 ¦
+------------+------+------------------¦
¦Total ¦6,023 ¦2,151 ¦
+--------------------------------------+
For purposes of determining depreciation, petitioner used a cost basis of $51,065, the straight line method of depreciation and a 25-year useful life.
OPINIONRespondent determined that petitioner's former residence was not ‘held for the production of income’ as that phrase is used in sections2 167(a)(2) and 212(2). Respondent, consequently, denied petitioner's claimed deductions for depreciation and maintenance with respect to his former residence for the years 1968 and 1969. Respondent argues further that even if the house was held for the production of income, no deduction for depreciation is allowable because petitioner failed to establish a useful life and a salvage value for the house.
Petitioner maintains that after his divorce in May 1967 he held the Grosse Pointe Woods residence for the production of income and that he is, therefore, entitled to deductions for maintenance and depreciation for the years 1968 and 1969. Petitioner would have us find that he abandoned the house in May 1967, when its value was only $50,000, and that he subsequently held the house for the purpose of realizing postconversion appreciation in value. We cannot agree that the facts support this contention.
The question to be decided is whether the property was converted from personal use to property held for the production of income. The answer depends upon the intent of petitioner in light of all the facts and circumstances. Frank A. Newcombe, 54 T.C. 1298 (1970). In Newcombe we indicated that a variety of factors must be analyzed to determine whether personal property is converted to...
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...¶ 9396], 410 F.2d 615, 622 (6th Cir. 1969), affg. in part and revg. in part [Dec. 28,603(M)] T.C. Memo. 1967-183; Quinn v. Commissioner [Dec. 33,537], 65 T.C. 523, 526 (1975). Section 162 generally allows a deduction for ordinary and necessary business expenses. In general, an expense is or......
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...¶ 9396], 410 F.2d 615, 622 (6th Cir. 1969), affg. in part and revg. in part [Dec. 28,603(M)] T.C. Memo. 1967-183; Quinn v. Commissioner [Dec. 33,537], 65 T.C. 523, 526 (1975). In general, an expense is ordinary if it is considered "normal, usual, or customary" in the context of the particul......
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