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4. Expectation that assets used in activity may appreciate in
value.
Section 1.183-2(b)(4), Income Tax Regs., identifies asset
appreciation as potentially relevant to the profit analysis.
However, in the case of farm property, the standard for
determining if such appreciation may be considered differs
depending on whether land is held primarily for appreciation or
primarily for farming. See, e.g., Engdahl v. Commissioner, 72
T.C. at 668 n.4; Hoyle v. Commissioner, T.C. Memo. 1994-592;
Ellis v. Commissioner, supra. If land is held primarily to
profit from the increase in value, “the farming and holding of
the land will be considered a single activity only if the income
derived from farming exceeds the deductions attributable to the
farming activity which are not directly attributable to the
holding of the land”, such that “the farming activity reduces the
net cost of carrying the land”. Sec. 1.183-1(d)(1), Income Tax
Regs. Conversely, if asset appreciation is merely collateral to
a primary purpose of farming, courts have permitted unrealized
appreciation to be considered as part of an overall intent to
profit from the property, irrespective of the amount of income
from farming. See, e.g., Engdahl v. Commissioner, supra at 668 &
n.4, 669; Hoyle v. Commissioner, supra; Ellis v. Commissioner,
supra.
In the present matter, the same result is obtained
regardless of whether petitioner’s ranch land was held primarily
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