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7. Taxpayer's Expectation of Appreciation in Value
Whether the taxpayer expects the property used in the
activity to appreciate in value is considered in deciding whether
the taxpayer has a profit objective. Faulconer v. Commissioner,
748 F.2d 890, 898-899 (4th Cir. 1984), revg. T.C. Memo. 1983-165;
see Lemmen v. Commissioner, 77 T.C. 1326, 1341-1342, 1342-1343
n.22 (1981). A taxpayer may intend to derive a profit from an
activity, even if the activity is not currently profitable, if
the taxpayer expects income from the activity and appreciation
of the assets used in the activity to exceed the expenses of the
activity. Sec. 1.183-2(b)(4), Income Tax Regs.
Petitioner contends that, counting appreciation in the value
of her land, she has shown that she had an actual and honest
profit objective. We disagree because she has not proven that
the appreciation in the value of her farm plus farm income
exceeded her farm losses or that she expected it to do so.
Petitioner submitted, at best, inconclusive evidence about
the value of the 100 acres of land she bought in 1961 for
$10,000.
Petitioner offered a letter from A.J. Caragol, Sr., an
associate broker with the residential real estate department of
Coldwell Banker (Caragol letter). The Caragol letter stated that
the fair market value of petitioner's farm is $555,000. The
letter is not dated, it does not state the fair market value of
petitioner's parents' land when she received it, it does not
state how the land was appraised, and it does not distinguish
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