*1057 Where the predominant purpose of the petitioner in purchasing residential property was to realize a pecuniary profit, a loss sustained upon the subsequent sale of the property is deductible even though the petitioner did occupy such property as a residence a short time each year during a part of the period it was owned by her. In computing such deductible loss the basis is not to be reduced by depreciation.
*475 This is a proceeding for the redetermination of an asserted deficiency in income tax for the year 1924 in the amount of $709.32, not all of which is in controversy.
It is alleged that the respondent erred in disallowing as a deduction an alleged loss of $12,881.70 upon the sale in 1924 of a house owned by petitioner.
FINDINGS OF FACT.
The petitioner is an individual, with office at Milwaukee, Wisconsin. Her husband, Hugh W. Randall, has acted for her in various business transactions.
In the fall of 1919, George Schley & Sons, architects and builders, started the construction of a residence at 1009 Shepard Avenue *476 (old*1058 numbering), Milwaukee, Wisconsin, for Eugene Yahr. The house was located one block from Lake Drive and was in one of the finest residential sections of Milwaukee. For personal reasons Yahr could not continue with the deal.
About the middle of March, 1920, Hugh W. Randall, who was present at luncheon at the Athletic Club, was discussing homes with a group of men. He told Perce Schley, who was a member the firm of George Schley & Sons, that he had been trying to find a home. Schley suggested the Yahr home. His suggestion was that it would be a good investment, but could be used to live in if Randall did not find a place. He told Randall that it could be turned over easily if he did find a place and convinced Randall that the house was a real bargain. Property in this neighborhood was in demand at that time. At that time the house was not completed. The interior had just received one coat of rough plaster.
Randall discussed the matter with his wife. She furnished the money and he purchased the property for her in the spring of 1920. He paid Yahr the difference between what was due Schley & Sons and the cost of the house. The balance of $15,318.50 due Schley & Sons was*1059 assumed by petitioner. Petitioner purchased the lot from Yahr. That was independent of the contract for the house. Schley & Sons had nothing to do with the sale of the lot. This property is the property in question herein.
Schley & Sons suggested several changes in the plan of the house to make it more salable. They suggested that the tile in the bathrooms be made higher than the plans called for, an open staircase be constructed to the third floor, cut stone be added to the exterior of the home, extra windows be put in and weather stripped, some iron work be put on the front of the house, the plumbing fixtures be changed, a pit be put in the garage, and a heat regulator be installed. These changes were made, entailing an extra cost to petitioner of about $10,000. The total cost of the property to the petitioner was $49,372. Randall gave instructions to Schley & Sons to resell the property and they told him that they would try to find a purchaser for it. Immediately after the sale of the property to petitioner, Schley & Sons made efforts to sell it for her, but such efforts were unsuccessful.
At the time the house was purchased by the petitioner, she and her husband*1060 were looking for a residence out of town. Petitioner's father died on January 10, 1920, and then petitioner and her husband decided to move their permanent place of residence to the Waukesha County Lake region. However, they were interested in purchasing the property in question because they believed there was an opportunity to buy it at a very low price and make a fairly good return when it was sold. Hugh W. Randall had previously dealt in residential *477 property with a resulting profit. He had purchased a home at 1775 Prospect Avenue, which he occupied as a home and which was sold in 1917 at a profit. Randall also made a profit in 1919 upon the sale of premises at 1919 Marietta Avenue, which he had occupied as a residence. In January, 1920, Randall also purchased residential property on Frederick Avenue, which he did not occupy as a residence. This property was later sold at a profit. When the Yahr house was called to his attention, he saw no reason why he could not make a profit upon this property just as he had in the other deals. Randall had discussed his dealings in real estate with his wife and she knew that they resulted in profit. The fact that these previous*1061 deals of her husband had resulted in profit greatly influenced petitioner in entering into the purchase of the property in question herein.
During the summer of 1920 the Randalls rented property in the country and during the entire summer looked for a satisfactory residence to purchase, but could find no satisfactory place for sale.
In the fall of 1920 a depression started in the real estate business and continued through 1921. The property in question herein was completed in the fall of 1920 after the depression had started and Schley & Sons suggested to Randall that to help dispose of the house he move into it and furnish it as nicely as he could. About two months before the Randalls moved into town from the country they furnished the property in question with the idea of making it as attractive as they could to sell it.
Schley & Sons were not able to sell the property for the petitioner, so petitioner and her husband moved into the house in question and occupied it for about two or three months each year until 1923. Such temporary occupancy was between the time which they spent in the Lake region and the time they spent in Florida. Petitioner never occupied or considered*1062 that she occupied the property in question as her permanent residence or as that of her family.
During the time the petitioner owned this property, her husband rented an apartment located at Marietta Avenue and Concord Street, which they used as a residence. The lease on this apartment ran from September 1, 1923, for three years. The lease itself was dated April 2, 1923.
It was not until 1923 that the Randalls were able to purchase the type of property which they wanted to buy for a permanent home. This was at Pine Lake in Waukesha County, and was purchased in 1923.
From the spring of 1922 to the fall of 1922, the property in question was rented by petitioner to C. H. Jackson. Jackson then went into bankruptcy and gave up the premises. This was about October, 1922, at which time the Randalls were ready to come from the *478 country and they moved back into the house again. No attempt was made to rent this property again as the real estate agent advised petitioner to keep the place open so it could be shown.
Shortly after petitioner purchased the property it was listed with Benjamin M. Weil for three months for sale at $70,000. Due to the fact that Weil thought*1063 the home was priced too high, he did not advertise it in the papers, but he made effors to sell it and it was shown to two or three prospects.
The fair market value of the lot in question herein in 1920 was $8,750. The fair market value of the entire property at the time Weil had it listed for sale was $55,000 to $60,000.
About May, 1923, Nathaneal Greene, a real estate operator, was authorized by petitioner to sell this property. He ran an advertisement in the paper concerning it. Randall wanted $60,000 to $65,000 for the house. Thereafter, Randall told Greene that he was very anxious to sell the house and placed a price of $50,000. Petitioner gave Greene exclusive agency to sell this property from August 21, 1923, to November 15, 1923, at $50,000. The fair market value of the property at that time was $50,000. Greene was not able to sell the house.
During the time petitioner owned the property in question, Hugh W. Randall was registered as a voter in the voting precinct in which the property in question was located. (It does not appear whether or not the other addresses shown on Hugh W. Randall's income tax returns, hereinafter referred to, were within the same voting*1064 precinct.)
The petitioner's addresses as stated in her Federal income tax returns were as follows:
| 1920 | 1009 Shepard Avenue, Milwaukee, Wis. |
| 1921 and 1922 | Do. |
| 1923 | 845 Marietta Avenue, Milwaukee, Wis. |
| 1924 | 841 Marietta Avenue, Milwaukee, Wis. |
Hugh W. Randall's addresses as shown in his Federal income tax returns were as follows:
| 1920 | 411 Broadway, Milwaukee, Wis. |
| 1921 and 1922 | 1009 Shepard Avenue, Milwaukee, Wis. |
| 1923 | 845 Marietta Avenue, Milwaukee, Wis. |
| 1924 | 841 Marietta Avenue, Milwaukee, Wis. |
The joint returns of the petitioner and Hugh W. Randall for Wisconsin State income tax purpose show the following addresses:
| 1921 | 1009 Shepard Avenue, Milwaukee, Wis. |
| 1922 | Do. |
| 1923 | 845 Marietta Avenue, Milwaukee, Wis. |
| 1924 | 841 Marietta Avenue, Milwaukee, Wis. |
| 1925 | 499 Terrace Avenue, Milwaukee, Wis. |
*479 From June 3, 1920, until October 23, 1923, Hugh W. Randall maintained a telephone address at the property in question.
In 1924 the petitioner sold the premises in question for the net price of $36,490.39, resulting in a loss to the petitioner of $12,881.70. During the time that the property in question*1065 was owned by the petitioner, it sustained depreciation at the rate of 3 per cent per annum.
In her return for the year 1924, petitioner claimed as a deduction the amount of $12,881.70 as a loss upon the sale of the premises in question. The respondent disallowed the claimed deduction.
The property in question was purchased by the petitioner primarily for the purpose of deriving a gain upon the sale thereof.
OPINION.
MCMAHON: The question here presented is whether the petitioner is entitled to deduct from gross income of 1924 the amount of a loss sustained upon the sale of certain residential property in Milwaukee. Section 214 of the Revenue Act of 1924 provides in part:
SEC. 214. (a) In computing net income there shall be allowed as deductions:
* * *
(5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; * * *
In , we stated:
A review of the cases bearing upon this question reveals to us that where a taxpayer acquires property with the intention of selling it at a profit, *1066 even though he may have resided thereon, if the predominating factor in its selection was the prospect of future profits, he is entitled to any loss sustained upon the sale thereof. See ; ; ; ; and .
To the same effect are , and .
In the instant proceeding we are satisfied from the evidence that the predominating factor in the petitioner's purchase of the property in question was the prospect of profit. At the time of such purchase petitioner and her husband had definitely made up their minds to change their permanent residence from the City of Milwaukee to the Waukesha County Lake region. The property in question was represented to petitioner as being a very good bargain and she expected to make a profit from the transaction. In purchasing this property it was not her purpose, primarily, to use it as her residence. Petitioner*1067 only occupied the property during a short period each *480 year, and for six months during 1922 she rented the property to C. H. Jackson.
The cases cited by respondent are not governing. In those cases the residential property purchased was not primarily for the purpose of pecuniary profit. We hold that the petitioner is entitled to a deduction of $12,881.70, which is the difference between the purchase price and the selling price of the property.
The respondent contends that in computing the deductible loss to which the petitioner is entitled there must be taken into account the depreciation sustained upon the property during the time it was owned by the petitioner. However, we have held in , and , that in determining the gain or loss from the sale of property the basis should not be reduced by depreciation where the taxpayer was not privileged, under the statute, to take depreciation deductions thereon in computing net income during the time the property was held by the taxpayer.
During the years that petitioner owned this property the only provision*1068 of the revenue acts allowing deductions for depreciation was section 214(a)(8) of the Revenue Acts of 1918, 1921 and 1924, which allowed the deduction of "a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence * * *." It is our opinion that the petitioner during the years which she held this property would not have been entitled to take depreciation deductions upon the property in question, for the reason that such property was not property used in a "trade or business." From the evidence it appears that the purchase in question was an isolated transaction. Consequently, in computing the loss which petitioner is entitled to deduct on account of the sale of the property in question the basis is not to be reduced by depreciation.
Judgment will be entered under Rule 50.