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Petitioner contends that his work on the farm enhanced its
productivity and value. Petitioner and Mrs. Mitchell testified
that they believed that the farm is appreciating in value and
that the trees petitioner planted and his other work had
increased the value of the farm. Petitioners point out that an
expectation that timber will appreciate in value may show that
the taxpayer had a profit motive, citing Kurzet v. Commissioner,
T.C. Memo. 1997-54. Petitioners did not estimate the amount of
appreciation in their property. Harris testified that the farm
was worth about $500 per acre in 1981 and about $1,000 per acre
in 2000. If we use Harris’s estimate, petitioner’s farm
appreciated about $50,000 ($500 times 100 acres) in 19 years
(about $2,632 per year). Petitioners reported losses averaging
$8,433 in the years in issue, which is more than three times
Harris’s estimate of the farm’s average annual appreciation. We
are not convinced that petitioner expected appreciation to exceed
his losses. This factor favors respondent.
5. Taxpayer's Success in Other Similar Activities
The fact that a taxpayer previously operated similar
activities profitably may show that the taxpayer has a profit
objective. Sec. 1.183-2(b)(5), Income Tax Regs. Petitioner
contends in his posttrial brief that he has spent most of his
life farming or advising others about their farms.
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