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(2) losses incurred in any transaction entered
into for profit, though not connected with a trade or
business; and
(3) * * * losses of property not connected with a
trade or business, * * * if such losses arise from
fire, storm, shipwreck, or other casualty, or from
theft.
It is a long-settled principle that a loss incurred by a taxpayer
on the sale of his or her personal residence is not deductible
except where prior to the sale the taxpayer has abandoned the use
of the property as his or her personal residence and has
converted it to profit inspired use. Melone v. Commissioner, 45
T.C. 501, 505 (1966); Leslie v. Commissioner, 6 T.C. 488 (1946);
sec. 1.165-9(a) and (b), Income Tax Regs.
Petitioners concede that the $499.98 listed on their
settlement sheet was additional income paid to them by the
purchasers incident to the sale of the Belair property and not
rent.6 Petitioners argue, however, that they “otherwise
appropriated” the Belair property “to income-producing purposes”.
See sec. 1.165-9(b)(1), Income Tax Regs.
For a conversion of use to have occurred, petitioners’ use
of the Belair property would have to have shifted from a personal
use to a business or profit-oriented purpose permitted under
section 165(c). Henry v. Commissioner, T.C. Memo. 1983-277. In
6 We note that rent paid as an interim measure until the
sale of a personal residence is completed is insufficient to
convert a personal residence to income-producing property.
Dawson v. Commissioner, T.C. Memo. 1972-4.
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