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section 165. Property that is used as a taxpayer’s residence may
be converted to rental or other income-producing property within
the meaning of section 165(a). See, e.g., section 1.165-9,
Income Tax Regs. (concerning the sale of residential property).
On that point, petitioners’ evidence did not show that the
property had definitively been converted to rental or other
income-producing property at the time of the earthquake.
Generally, taxpayers must do more than merely list their
residential realty to convert its use from personal to one which
would permit a loss under section 165 that is not subject to the
limitation of section 165(h)(1) and (2). See, e.g., Newcombe v.
Commissioner, 54 T.C. 1298, 1302-1303 (1970); Rogers v.
Commissioner, T.C. Memo. 1965-8. Although petitioners had listed
the property for sale and were continuing to make repairs to
enhance the property, some of their furniture remained, and the
property was listed for sale rather than for rent. Petitioners
were able to lease the property just 4 days after the earthquake
occurred, but these events are not sufficient to place them over
the threshold necessary to convert their personal residence into
property for which section 165(c)(1) or (c)(2) losses would be
available. Accordingly, the $9,221 casualty loss is subject to
the limitations of section 165(h)(1) and (2).
Decision will be entered under
Rule 155.
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Last modified: May 25, 2011