- 5 -
OPINION
Issue 1. Foreclosure Loss
The first issue we consider is whether petitioner is entitled
to the claimed foreclosure loss deduction in 1986. Petitioner
argues that the Jensen Road property was constructed as a "spec"
house, and as such constituted business or investment property. He
asserts that even though the Jensen Road house was used as his and
Ms. Head's residence after the anticipated sale of the house fell
through, the house retained its business character because it was
used to obtain financing for his retail coin and stamp business.
Respondent disagrees, contending that once petitioner used the
Jensen Road house as his and Ms. Head's residence, the business or
investment character, if any, of the Jensen Road property
terminated. Thus, respondent asserts, the foreclosure loss is not
deductible as it was sustained in connection with property held by
petitioner for personal purposes.
Section 165(a) allows as a deduction any loss sustained by the
taxpayer during the taxable year not compensated for by insurance
or otherwise. However, section 165(c) limits deductions for losses
of individuals to those incurred in a trade or business, incurred
in a transaction for profit, or as a result of a casualty or theft.
For tax law purposes, a foreclosure has the same effect as a
"sale or exchange". Helvering v. Hammel, 311 U.S. 504 (1941);
Quinn v. Commissioner, T.C. Memo. 1983-485. Losses attributable to
the sale of a family residence are nondeductible personal losses.
Sec. 262; Austin v. Commissioner, 35 T.C. 221 (1960), affd. 298
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011