*136 Decision will be entered under Rule 50.
Petitioners agreed to convey to WRI the lot on which their principal dwelling house was situated and to remove the dwelling therefrom. In exchange, they received $ 20,000 in cash and the right to possess, for their lives, certain other residential property nearby owned by WRI, which interest had a value of $ 36,588. Petitioners moved into the latter residence and thereafter continued to occupy it as their only place of abode. At or about the same time, they purchased another lot and moved their former dwelling to that location. Held, none of the gain realized on the exchange of the lot qualified for nonrecognition since petitioners retained their former dwelling house, and therefore did not sell their "old residence" within the meaning of sec. 1034(a), I.R.C. 1954. Benjamin A. O'Barr, 44 T.C. 501">44 T.C. 501 (1965), followed. Held, further, respondent properly determined that the cost of moving the dwelling should not be added to petitioners' basis in the lot, or otherwise offset against the amount realized on the exchange thereof, since petitioners failed to prove that this expenditure was directly related*137 to the improvement of the land for the purpose of the exchange.
*1049 Respondent determined a deficiency in petitioners' income taxes for the calendar year 1961 in the amount of $ 7,225.65. The questions presented for decision are as follows:
(1) Whether the gain realized by petitioners on the exchange of land upon which their dwelling house was situated qualifies for nonrecognition under section 1034(a)1 where petitioners acquired and moved into a new place of abode, and moved their former dwelling house*138 to another lot.
(2) Whether the petitioners are entitled to add the cost of moving their former dwelling to their basis in the land sold, or to offset that cost against the amount realized on the exchange of the land.
FINDINGS OF FACT
All of the facts have been stipulated and are found accordingly. The stipulations and exhibits attached thereto are incorporated herein by this reference.
Petitioners are individuals who resided at premises known as 106 Tazewell Avenue, Williamsburg, Va., at the time of filing their petition herein. Petitioners filed a joint income tax return for 1961 with the district director of internal revenue, Richmond, Va.
*1050 In September 1961, the petitioners occupied as their principal place of abode premises then known as 106 Tazewell Avenue, Williamsburg, Va. (hereinafter referred to as premises A). Premises A consisted of a dwelling house and a lot, approximately 100 by 116 feet, *139 on which the dwelling house was situated. The petitioners' basis in the house was $ 19,324.12 and their basis in the land was $ 1,023.44.
On September 12, 1961, the petitioners agreed to convey to Williamsburg Restoration, Inc. (hereinafter referred to as WRI), the land on which the petitioners' dwelling was situated and to remove the dwelling therefrom. In exchange, the petitioners received $ 20,000 in cash and the right to possess, for their lives, residential property then known as 120 Tazewell Avenue, Williamsburg, Va., since redesignated as 106 Tazewell Avenue (hereinafter referred to as premises B).
The agreement with respect to the "life tenancy" in the WRI property provided as follows:
This Agreement, made in duplicate this 12th day of September, 1961 by and between WILLIAMSBURG RESTORATION, INCORPORATED, a Virginia corporation having its registered office in Williamsburg, Virginia (hereinafter referred to as WRI), party of the first part, and STUART M. HUGHES and GENEVIEVE O. HUGHES, husband and wife, (hereinafter referred to as Life Tenants), parties of the second part,
WITNESSETH
That for and in consideration of the conveyance coincident herewith of certain real property*140 situated on the north side of Tazewell Hall Avenue in Williamsburg, Virginia, to WRI by Life Tenants, WRI hereby grants unto Life Tenants and to the survivor thereof for the period of their natural lives the right to occupy, rent-free, from the date hereof, according to and under the terms and conditions hereinafter provided, the following described property to wit:
That certain parcel of land with the improvements thereon, acquired from Elizabeth Hall Meyers by deed dated October 28, 1960, situated on the southeast corner of the intersection of Tyler Street and Tazewell Hall Avenue and having a frontage of approximately 100 feet on Tyler Street and approximately 130 feet on Tazewell Hall Avenue.
It is Mutally Covenanted and Agreed by the Parties Hereto for the Duration of the Tenure Hereby Created That:
(1) All taxes, levies and assessments against the premises shall be paid by WRI.
(2) WRI will at its own expense make all ordinary and normal repairs to the buildings and improvements now or hereafter erected on the said premises which it deems necessary; however, maintenance or repairs required by or resulting from the negligence of an occupant shall not be included in this obligation*141 and WRI will be reimbursed by Life Tenants (or personal representative in the event the term is extended as provided in paragraph 12) for the cost of maintenance or repairs so occasioned subject, however, to the provisions of paragraph (3) with reference to damage resulting from fire or casualty.
(3) WRI will, subject to the proviso set forth in the immediately following section of this paragraph (3), make at its own expense all repairs to the buildings *1051 and improvements now or hereafter erected on the said premises required because of one or successive partial or complete destructions thereof by the action of the elements, fire or other casualty, so as to insure the tenure herein granted, but in the event of damage or destruction of any of said buildings under such circumstances as will require WRI to repair or rebuild the same, WRI shall be under no obligation to furnish the Life Tenants or other occupants with another residence during the period of repair or reconstruction;
Provided, however, that if such destruction or damage to said buildings or improvements or any of them is caused by the wilful, malicious or grossly negligent act of Life Tenants or any occupant of*142 the house, their agents, employees, or visitors, or by any act of Life Tenants or any occupant of the house, their agents, employees, or visitors, which would prevent any standard insurance company from writing a standard insurance policy of the State of Virginia at the standard rate, or would cause the cancellation of such a policy once written, or would relieve such company from liability under such a policy were Life Tenants the named insured under such policy, there shall be no obligation on WRI to repair or rebuild the same. The foregoing references to a standard insurance policy of the State of Virginia are made for the purpose of defining the rights and obligations of the parties hereto and shall be given full force and effect irrespective of the existence or non-existence of such policy or policies on said buildings and improvements.
(4) WRI shall have the right to landscape the premises, at its option, as it may from time to time deem desirable or proper, but the maintenance and unkeep of the yard and all landscape material planted either by WRI or by Life Tenants shall be the responsibility of Life Tenants, except that in the event Stuart M. Hughes should be incapacitated*143 while in occupancy, WRI shall be responsible for maintaining the yard and landscaping for the duration of such incapacity
(5) WRI through its agents and employees shall have the right at all times to enter in and upon the premises for the purposes of construction, reconstruction and maintenance, of making repairs, improvements and replacements to buildings and grounds and for the purpose of making such inspections as it may deem necessary or advisable, but any inspection of the dwelling house shall be made at reasonable hours during the daytime upon reasonable advance notice being given Life Tenants.
(6) All water, sewer, and electricity rents and charges assessed against the property shall be paid by Life Tenants.
(7) Life Tenants shall be under no obligation to WRI to carry fire or other casualty insurance on the premises except as required in paragraph (8).
(8) Life Tenants shall have the right to sub-let the property for single family residential purposes but in the event this is done, they will reimburse WRI for the cost of any extraordinary maintenance or repairs resulting therefrom including repainting required because of change of tenants and will carry for the benefit of *144 WRI fire, and extended coverage insurance to the full insurable value of the property and reasonable liability insurance. It is specifically understood, however, that occupancy of the property by Mrs. Mabel Oliver Bellwood or Mrs. Annie R. Maynard, or either of them, as their residence shall not require the said insurance to be carried.
(9) Life Tenants and other occupants authorized by the terms hereof shall use the premises solely as a dwelling or home for themselves and for members of their families, companions, employees and servants, if they are living with them, provided that Life Tenants or other occupants may from time to time rent a room or rooms in the dwelling house if they are in residence in said dwelling house, but the premises shall not otherwise be used by Life Tenants or other occupants as a source of profit.
*1052 (10) Life Tenants will not erect any sign on the premises, or attach or install awnings, radio aerials, television antenna or air conditioning units thereof, or make any other installation on the said premises without first obtaining the written consent of WRI so to do.
(11) Life Tenants will make no changes, alterations, deletions or additions to *145 the interior or exterior of the buildings and improvements on the said premises without having first obtained the written consent of WRI so to do.
(12) Upon the deaths of Life Tenants all restrictions and covenants contained in this agreement shall terminate and WRI shall have unrestricted title to, and the use of, said premises; provided, however, that if the deaths of Life Tenants should occur prior to the time that their youngest child by blood reaches the age of twenty-two (22), then the term hereof shall be extended to the twenty-second birthday of the said youngest child. If the dwelling should be destroyed under circumstances that would relieve WRI of the obligation to repair or rebuild under the provisions of paragraph (3) above, or if Life Tenants become insolvent, or make an assignment for the benefit of creditors, or if a valid petition in bankruptcy or insolvency is filed by or against Life Tenants, or if any event occurs whereby, or as a result of which, the unexpired balance of the tenure hereby created would, by operation of law or otherwise, except for this provision or condition, devolve upon or pass to any person or corporation other than Life Tenants, or if Life*146 Tenants fail to remedy the breach of any of the terms and conditions herein contained after thirty (30) days' written notice so to do, then the tenure hereby created shall, upon the happening of such an event or at the expiration of said thirty (30) days, expire as fully and completely as if the day of the happening of such event or the day of the expiration of said period of thirty (30) days were the date herein definitely fixed for the expiration of the tenure hereby created, and all rights of the Life Tenants in the premises shall cease, and Life Tenants shall thereupon quit and peaceably surrender the premises to WRI, and it shall be lawful for WRI or its agents to re-enter upon the premises and every part thereof, either by ejectment, summary remedy for unlawful detainer, personal entry or otherwise, and remove all persons and property therefrom without being liable to prosecution or damage therefor. In such event, Life Tenants, for themselves and all persons claiming through or under them, hereby waive any and all right of redemption now or hereafter given by any law.
(13) WRI has the right to convey to Life Tenants the interest herein created. It has done no act to encumber*147 the premises. Life Tenants shall have quiet possession of said premises, subject, however, in all respects to WRI's right of possession and occupancy during their tenure as set out in this agreement.
(14) This agreement shall inure to and in all respects be binding upon the successors and assigns of WRI and the personal representatives of Life Tenants.
(15) Any notice by either of the parties hereto to the other party may be given and shall be deemed to have been duly given if either delivered personally or sent by registered mail, addressed, as the case may be to WRI at its office in Williamsburg, Virginia, or to Life Tenants at the premises hereinabove described.
This agreement was signed before a witness by the petitioners herein, and by C.H. Humelsine, president of WRI. Signatures of the parties were acknowledged before notaries public.
On September 16, 1961, the petitioners acquired by purchase a parcel of land at 103 Williamsburg Avenue, Williamsburg, Va. (hereinafter referred to as premises C). In September 1961, the petitioners *1053 removed their former dwelling house from premises A to premises C at an expense of $ 4,048. Premises C has been leased by the petitioners*148 who hold it for the production of income.
Also in September 1961, the petitioners moved into premises B and thereafter continued to occupy it as their only place of abode. Within 1 year from the date of the transfer of premises A to WRI, the petitioners expended $ 2,000 for capital improvements on premises B.
In September 1961, the petitioners' interest in premises B had a value of $ 36,588.
In their joint income tax return for 1961 petitioners took the position that the gain which was realized on the exchange of the premises A land should be recognized only to the extent that the "adjusted sales price" of the land exceeded the value of the interest which they received in premises B (plus improvements made thereon within 1 year after the exchange). In computing the "adjusted sales price" of the land, petitioners subtracted $ 4,048, the cost of moving the dwelling from premises A to premises C, from the total amount which they received for the land.
In his notice of deficiency respondent determined that none of the gain realized in the above transaction qualified for nonrecognition under section 1034(a). Respondent also determined that the expense of moving the dwelling house to*149 the new lot should not have been added to petitioners' basis in the land, or considered a cost of sale, for the purpose of computing their gain realized.
OPINION
In September 1961, petitioners occupied premises A, consisting of a dwelling house and lot, as their principal place of abode. On September 12, 1961, the petitioners agreed to convey to WRI the land on which the petitioners' dwelling was situated and to remove the dwelling therefrom. In exchange, they received $ 20,000 in cash and the right to possess, for their lives, other residential property (premises B). On September 16, 1961, they acquired by purchase a parcel of land (premises C), and subsequently moved their former dwelling to that location where it has since been used as income-producing rental property. Also in September 1961, the petitioners moved into premises B and thereafter continued to occupy it as their only place of residence.
The first issue for our decision is whether part of the gain petitioners realized upon the exchange of the premises A land qualified for nonrecognition under section 1034. That section provides, in pertinent part, as follows:
SEC. 1034. SALE OR EXCHANGE OF RESIDENCE.
(a) Nonrecognition*150 of Gain. -- If property (in this section called "old residence") used by the taxpayer as his principal residence is sold by him after *1054 December 31, 1953, and, within a period beginning 1 year before the date of such sale and ending 1 year after such date, property (in this section called "new residence") is purchased and used by the taxpayer as his principal residence, gain (if any) from such sale shall be recognized only to the extent that the taxpayer's adjusted sales price (as defined in subsection (b)) of the old residence exceeds the taxpayer's cost of purchasing the new residence.
* * * *
(c) Rules for Application of Section. -- For purposes of this section:
(1) An exchange by the taxpayer of his residence for other property shall be treated as a sale of such residence, and the acquisition of a residence on the exchange of property shall be treated as a purchase of such residence.
Respondent contends that petitioners did not sell or exchange their "old residence" within the meaning of the above statute since they retained their former dwelling house. On the other hand, petitioners claim that the premises A land was as much a part of the residential property*151 as the dwelling, and that the land, by itself, should be treated as an "old residence." We agree with the respondent. 2
In Benjamin A. O'Barr, 44 T.C. 501">44 T.C. 501 (1965), the taxpayers sold an unimproved portion of the land on which their dwelling house was located. Several months later they purchased and moved into a new residence, but they did not sell their old dwelling house which, after remaining vacant for about 2 months, was occupied by the family of the taxpayers' daughter. The Court recognized that an "old residence" may include both a dwelling house and some surrounding land which is not used for income-producing purposes. However, the Court stated (44 T.C. at 503) that "While a residence can consist of a dwelling house and adjacent land, the adjacent land alone cannot be considered a residence." *152 The Court further stated (44 T.C. at 503):
Here, according to the stipulated facts, petitioners' old dwelling house has never been sold or disposed of. The only logical interpretation of section 1034 is that it will only apply in situations where a taxpayer has disposed of his old dwelling. Since that has not occurred here, the statute has no application.
Petitioners rely on Bogley v. Commissioner, 263 F. 2d 746 (C.A. 4, 1959), reversing 30 T.C. 452">30 T.C. 452 (1958), in which the taxpayer sold his old residence, consisting of a house and 13 acres, all of which was offered for sale as an entirety, in three separate transactions. The house and immediately surrounding 3 acres of land were sold in 1950 before the effective date of section 318(a) of the Revenue Act of 1951 (sec. 112(n) (1) of the 1939 Code), and a few months later, but in 1951 after the new section became effective, the remaining 10 acres of that tract of land were also sold, in two separate parcels of 5 acres each. We concluded that petitioners there, having sold their old residence in 1950, did not own a residence located on the property*153 in 1951 but *1055 merely 10 acres of unimproved land. Since the sales of acreage in question took place in the year following the sale of the old residence we held that they were not sales of an old or principal residence to which the new statute applied.
The Fourth Circuit reversed and held that the land sold in the year after the sale of the house still constituted part of the taxpayers' "old residence" within the meaning of the predecessor of section 1034. The Court of Appeals pointed out that the 13 acres intact were the old residence and that to qualify for section 112(n)(1) (now sec. 1034 (a)) treatment the property need not be used as a residence on the date of sale. The 10-acre tract was held to be not merely vacant, unimproved land when sold but in reality part of the taxpayers' old residence.
We view the Bogley case as distinguishable and inapposite here. As we recognized in Benjamin A. O'Barr, supra, the holding in Bogley does not support the contention that a sale of land, by itself, qualifies for nonrecognition of gain when the dwelling house is retained by the taxpayer. Likewise we view Rev. Rul. 54-156, 1 C.B. 112">1954-1 C.B. 112,*154 which petitioners cite, as distinguishable also, even if we were to regard it as an acceptable extension of the statutory scheme by respondent's interpretation. 3
Here petitioners did not move their old dwelling house to a new lot and occupy it as their principal residence. Instead they moved it to another lot, converted it to income-producing property and have continued to rent it since that time. The petitioners' basis in their former*155 dwelling was $ 19,324.12, and in the old lot it was $ 1,023.44. To conclude that the sale of the lot alone without the dwelling was the sale of petitioner's old residence (used by them as their principal residence) under the facts disclosed by the record here would be to wag the dog by its abnormally short tail.
We conclude that petitioners have failed to meet the requirements of the statute, as interpreted by us in Benjamin A. O'Barr, supra, since they did not sell or dispose of their former dwelling house. They contend, however, that the instant case is distinguishable from O'Barr, first, because the entire lot of premises A was sold rather than a mere unimproved, vacant portion thereof, and second, because the dwelling was moved to another lot. We note the differences but do not find any good or compelling reason why a different result should obtain under such circumstances. As we observed in O'Barr, adjacent land alone cannot be considered a residence for the purposes of applying section *1056 1034. We hold that the gain realized by petitioners on the sale of the subjacent land alone of premises A, without the old dwelling which*156 petitioners retained, does not qualify for nonrecognition under section 1034(a).
In the light of our conclusion that section 1034 is not applicable on the record before us, because petitioners retained their dwelling and converted it to rental property at a new location, we need not decide whether or not the limited and inalienable life estate that the petitioners acquired in premises B, as part of the consideration for the sale of the lot of premises A, is property which qualifies as a new residence under section 1034. See fn. 2 supra.
The only remaining issue for our decision is whether respondent properly considered the cost of moving petitioners' former dwelling from premises A to premises C as a capital expenditure which should be added to the basis of the dwelling. Petitioners contend that this moving expense constituted an improvement to the premises A land and a cost of sale which should be treated as an offset against the amount realized on the sale of the land.
It is clear that when a seller of land agrees by contract with the purchaser to demolish and remove the buildings situated on the land, the removal cost represents a capital expenditure which serves to increase*157 the seller's basis in the land for the purpose of computing his gain realized. Standard Linen Service, Inc., 33 T.C. 1">33 T.C. 1 (1959). On the other hand, the cost of moving a building intact from one location to another has been considered an improvement to the building which should be added to the basis of the building. Hoyt B. Wooten, 12 T.C. 659">12 T.C. 659 (1949), affd. 181 F. 2d 502 (C.A. 6, 1950); Rev. Rul. 79, 1953-1 C.B. 41; see also Rev. Rul. 54-156, supra.
The parties have stipulated only that petitioners agreed to remove their former dwelling house from premises A. There is no evidence of record indicating that the buyer of the premises A land asked for or could have required that the dwelling be moved to premises C. Nor is there evidence of any benefit inuring to the premises A land by moving the house to premises C. Petitioners have not proved that moving the dwelling from premises A to premises C was either essential to, or for the basic purpose of, effectuating the sale or exchange of the premises A*158 land. Neither have they established any relationship between the amount of the moving expense in question and the cost of merely removing the house from the lot sold. We conclude that petitioners have failed to carry their burden of proving that the cost of moving the dwelling should be added to their basis in the land sold. Willow Terrace Development Co. v. Commissioner, 345 F. 2d 933 (C.A. 5, 1965), affirming 40 T.C. 689">40 T.C. 689 (1963), certiorari denied 382 U.S. 938">382 U.S. 938 (1965); see also Keeler v. United States, 174 F. Supp. 69 (N.D. Ga., 1959).
*1057 Although a portion of the moving cost may well have represented an improvement to the premises A land and a cost of sale, neither party has argued that only a portion of the total moving cost is allocable to the petitioners' basis in the land. Even if they had, and assuming arguendo that an allocation would be proper in certain cases, the facts of record are totally insufficient for the purpose of making such an allocation here. 4 We are constrained to conclude and hold that respondent's determination as to*159 this issue must also be sustained.
Decision will be entered under Rule 50.
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise noted.↩
2. Respondent also argued that premises B did not constitute a "new residence" under sec. 1034(a)↩; however, we do not find it necessary to reach that question.
3. Rev. Rul. 54-156, 1 C.B. 112">1954-1 C.B. 112, reads as follows:
Where a taxpayer sells the land on which his principal residence is located, and within the period beginning 1 year prior to the date of the sale and ending 1 year after such date he purchases another lot and moves the old house to the new lot and uses it as his principal residence, the provisions of * * * [the predecessor of sec. 1034↩], relating to the nonrecognition of gain from the sale or exchange by a taxpayer of his principal residence, are applicable to the sale of the land. * * *
4. In addition, no evidence was presented with respect to how much it would have cost to simply demolish and remove the dwelling from premises A. Moreover, petitioners have not argued that their basis in the premises A land should be increased at least to the extent of such clearance costs. Therefore, under the circumstances, we need not consider the applicability to the instant case of our holding in Standard Linen Service, Inc., 33 T.C. 1">33 T.C. 1↩ (1959), wherein demolition and clearing costs were added to the seller's basis in the land sold.