Ireland v. Commissioner

Memorandum Opinion

VAN FOSSAN, Judge: The respondent determined a deficiency of $7,780.20 in petitioners' income tax for the year 1945 consequent chiefly on his disallowance of a loss claimed by petitioners in the amount of $12,425.83 on account of the sale of a property known as 2540 Madison Road in Cincinnati, Ohio. This property was the residence of petitioners from 1933 to September 1944, when petitioners vacated the property with no intention of returning thereto and rented it for $150 per month. Petitioners thereby converted the property to business use. Petitioners sold the above property in August 1945 for $18,000. Since petitioners held the property as a business investment after they vacated the same, the loss, if any was incurred, was an ordinary loss. .

It is agreed that the property had a cost to petitioners of $25,500, comprised of the original purchase price of $13,000 and improvements by petitioners amounting to $12,500. The sale for $18,000 was made under pressure because petitioners needed funds in connection*242 with another property purchased as a residence. The sale was made to the first offering purchaser after the property was listed for sale. By reason of the special circumstances, the sale did not establish the fair market value of the property as of September 1944.

The property had a frontage of 110 feet and a depth of 218 feet. It was improved with a house, originally built in 1875, and had a 3-car garage. The house had been remodeled and restored during petitioners' occupany and was in excellent condition both when converted to rental purposes and when sold. At September 1, 1944, it had a remaining useful life of 20 years. A proper depreciation rate for the buildings as of the basic date is 5 per cent.

The property had a fair market value as of September 1, 1944, of $23,750, of which $16,500 represented the value of the land and $7,250 represented the value of the buildings.

Decision will be entered under Rule 50.