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important is that petitioner generally participated in the bed
and breakfast activity only when he was not at his full-time job
as a school principal. On the whole, in addition to petitioner’s
full-time occupation and other business activities, petitioner
expended only minimal time and effort on the bed and breakfast
activity. We conclude that this factor is not indicative of a
profit objective.
We consider the taxpayer’s expectation that assets used in
the activity may appreciate in value. The term “profit”
encompasses appreciation in the value of assets used in the
activity. Sec. 1.183-2(b)(4), Income Tax Regs. Accordingly, a
profit objective may be inferred even where there are no
operating profits, so long as the appreciation in value of the
activity’s assets exceeds its operating expenses of the current
year and its accumulated losses from prior years. Golanty v.
Commissioner, 72 T.C. at 427-428.
Petitioner argues that he expects the Camelot Inn’s primary
asset, the residence, to appreciate in value. Petitioner offered
a residential appraisal that the market value of the Sullivan
Hollow residence was $115,000 as of August 31, 1994. Petitioner
offered no evidence of the market value of the residence as of
the years in issue. Based on an appraisal, the market value of
the Sullivan House residence as of April 18, 2002, was $260,000.
Petitioner’s accumulated losses from 1994 through 1997 year total
$164,270. Assuming that the residence appreciated in value each
year from 1994 through 2002, then the accumulated losses of the
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