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such use was insufficient to constitute residential use as
required by section 1034(a).
We find that respondent's reliance on Grace is misplaced.
In Grace we concluded that a taxpayer's storing business tools in
the basement of his home was insignificant business use, so that
no allocation was required for purposes of section 1034 and the
regulation thereunder. However, it does not follow that
petitioner's use of the upper, steeply hilled portion of his
property was so insignificant as to establish that it was not
used by him as his residence. Moreover, we do not believe that
petitioner's use of this area was insignificant.
Petitioner and his girlfriend, Patsy Lyons, have used the
upper, steeply hilled portion of the Clayton property for
horseback riding, hiking, walking, and simply to enjoy the
unobstructed view of the countryside and Mount Diablo. During
the springtime petitioner's personal horses graze up there.
When petitioner originally built his principal residence on the
Clayton property, he was considering building it in the upper
wooded area. However, he chose not to do so, because he would
not have been able to clear the area and build a house within the
2-year period of section 1034.
Based on the entire record, we find that petitioner's use of
the upper, steeply hilled area was significant, and sufficient to
constitute residential use. Cf. Grace v. Commissioner, supra.
Petitioner asserts that he used only 7-� acres of the
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