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petitioner in 1977, and the apple and timber activity began a
couple of years thereafter. The farm consists of five parcels of
land. Four of the parcels are used in farming and the fifth has
a house on it. The apple orchard portion of the property
consists of approximately 10 acres with about 250 apple trees.
The house is on a parcel of 18 acres. Approximately 92 acres
consist of either a mixed forest or hardwoods that petitioner has
planted. The hardwoods are primarily oak and black walnut. The
trees will take about 40 years to mature. The farm income is
from people who pick their own apples in the orchard or who buy
bags of apples that petitioner picked and bagged. The farm
activity has never generated a profit.
In 1995, petitioner reported $3,833 in gross income and
$42,938 in expenses for his farm activity. Petitioner claimed a
loss of $39,105. Respondent allowed the expenses to the extent
they offset the income and disallowed the loss of $39,105.
Petitioner and respondent agree that the mortgage interest of
$17,291 and the property taxes of $5,544 claimed on the Schedule
F are properly deducted as itemized deductions on Schedule A as
expenses for a second home. The remaining expenses at issue
total $16,270 ($39,105 loss less $17,291 mortgage interest less
$5,544 property taxes).
Section 183(a) disallows any deductions attributable to
activities not engaged in for profit except as provided under
section 183(b). Taxpayers need not have a reasonable expectation
of profit. However, the facts and circumstances must demonstrate
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