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Code in effect for the year at issue, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
The issues for decision are: (1) Whether petitioners are
required to include in income capital gain from the sale of
investment property; (2) whether certain interest payments and
taxes that petitioners reported as Schedule E deductions from
rental real estate income should be redesignated as Schedule A
itemized deductions; and (3) whether petitioners are liable for
an accuracy-related penalty pursuant to section 6662(a).
FINDINGS OF FACT
The parties have stipulated some of the facts, which are so
found. The stipulation of facts is incorporated herein by this
reference. At the time the petition was filed, petitioners were
husband and wife whose primary residence was in Carmel,
California.
On July 12, 1976, petitioners purchased a house in Pacific
Grove, California, for $48,351. They resided in this house for
approximately 4 years before converting it into rental property.
On April 7, 1992, petitioners purchased a 5-acre lot in Big
Sur, California, for $160,316. Their purchase offer contained no
contingencies. Borrowing against a personal line of credit,
petitioners paid the seller of the property, Marcia D’Esopo,
$35,316 as a cash downpayment and assumed a note for the balance
of the purchase price. In July 1992, petitioners began work to
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