Robinson v. Comm'r of Internal Revenue

Decision Date29 June 1943
Docket NumberDocket No. 105362.
Citation2 T.C. 305
PartiesMARY LAUGHLIN ROBINSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

The petitioner in 1931 abandoned her home, took up her residence in another property, and had resided there for approximately 11 years at the time of trial. The former residence was in 1932 listed for rent or for sale with two real estate firms which in spite of diligent efforts and negotiations with prospects, were never able to rent or sell the property. The garage, a separate portion of the premises, was rented during the taxable years 1936 and 1937. Held, expenses for services of a caretaker, and depreciation on the property are allowable deductions under section 23(a) of the Revenue Act of 1936, as amended by section 121 of the Revenue Act of 1942. Walter W. McVay, Esq., for the petitioner.

John T. Rogers, Esq., for the respondent.

OPINION.

DISNEY, Judge:

In this case, which involves the calendar years 1936 and 1937, memorandum opinion was entered on June 11, 1942, in substance denying deduction of expenses of maintenance of and depreciation upon property formerly occupied by the petitioner as a home, but abandoned as such due to establishment of a home elsewhere, where the petitioner through real estate firms made diligent, but unsuccessful, efforts to rent or sell the property. It was held that mere abandonment of the home did not, under cases then controlling, constitute conversion of the former home into business property. Upon appeal the decision was affirmed, but the case was remanded with leave to consider the applicability of the provisions of section 23 of the Internal Revenue Code, as amended by section 121 of the Revenue Act of 1942.1 Respondent filed his motion that said section be held not applicable, and hearing has been had upon the motion and in compliance with the mandate.

It is our opinion that the section, expressly made applicable to the taxable years, does here apply, and requires allowance of deduction of expense of maintenance, and depreciation upon the property. The statute in clear terms provides for the deduction of expense of production of income, or for the management, conservation, or maintenance of property held for the production of income, and provides for the deduction of depreciation upon property held for the production of income. The property formerly constituting the home, under such language, no longer need be converted into business property as a prerequisite to allowable deductions. If therefore the property was held for the production of income, both maintenance expense and depreciation are deductible. Regulations 103, as amended to cover section 121 of the Revenue Act of 1942, provides in part:

The term ‘income‘ for the purpose of section 23(a)(2) comprehends not merely income of the taxable year but also income which the taxpayer has realized in a prior taxable year or may realize in subsequent taxable years; and is not confined to recurring income but applies as well to gains from the disposition of property. For example, if defaulted bonds, the interest from which if received would be includible to income, are purchased with the expectation of realizing capital gain on their resale, even though no current yield thereon is anticipated, ordinary and necessary expenses thereafter incurred in connection therewith are deductible. Similarly, ordinary and necessary expenses incurred in the management, conservation or maintenance of a building devoted to rental purposes are deductible notwithstanding that there is actually no income therefrom in the taxable year, and regardless of the manner in which or the purpose for which the property in question was acquired. Expenses incurred in managing, conserving, or maintaining property held for investment may be deductible under this provision even though the property is not currently productive and there is no likelihood that the property will be sold at a profit or will otherwise be productive of income and even though the property is held merely to minimize a loss with respect thereto. * * *

Ordinary and necessary expenses in connection with the management, conservation, or maintenance of property used as a residence by the taxpayer or acquired by him for such use are not deductible, even though the taxpayer makes efforts to sell the property at a profit or to convert it to income-producing purposes, and even though the property is not occupied by the taxpayer as a residence unless prior to the time that such expenses are incurred the property has been rented or otherwise appropriated to income-producing purposes by some affirmative act and has not been reconverted.

The facts are, in short, that in September 1931 the petitioner inherited a residential property, and immediately moved into it with intent to live permanently therein and to abandon her former home in Pittsburgh, Pennsylvania, the property herein involved. At the time of trial in 1942, she with her family still resided in the inherited residence, and had never after September 1931 lived in the former home. Early in 1932 she listed the former home for sale with two real estate firms in Pittsburgh, for rent or for sale, and although the firms made diligent efforts and carried on numerous negotiations with prospective purchasers or tenants, neither firm was ever able to rent or sell the property. From January 1, 1934, and during the taxable years, 1936 and 1937, the garage, which was separate from the residence, was rented to the caretaker of the premises for $25 a month. That amount -as reported as income. In each of the taxable years $840 was paid as wages to the caretaker. Deduction of these items and depreciation claimed on the house was disallowed by the Commissioner.

In this matter the taxpayer no longer used the property as a residence, and prior to the time the expenses were incurred the property had been appropriated to...

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