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revenue during the years in issue and he had no credible plan for
operating it profitably in the future.
D. Whether Petitioners Can Deduct Expenses for Their Residence
A taxpayer may deduct losses incurred in any transaction
entered into for profit. Sec. 165(c)(2). Similarly, a taxpayer
may deduct ordinary and necessary expenses for the production or
collection of income or for the management, conservation, or
maintenance of property held for the production of income. Sec.
212. However, a taxpayer may not deduct the loss on the sale of
his or her personal residence or the expenses incurred in leasing
the home (other than taxes and mortgage interest), sec. 165(a);
Newton v. Commissioner, 57 T.C. 245, 248 (1971); Harris v.
Commissioner, T.C. Memo. 1982-410, affd. on other issues 745 F.2d
378 (6th Cir. 1984); sec. 1.165-9(a), Income Tax Regs., unless
the taxpayer converted the residence to an income-producing
property, sec. 1.165-9(b), Income Tax Regs.
Petitioners contend that they converted their residence to
rental property when Mrs. Mitchell moved out of the home in 1995,
and that they may deduct rental expenses in 1996 and 1997 and a
loss on the sale of the property in 1997. We disagree. There is
no convincing evidence that petitioners converted 502 North
Hickory to rental property.
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