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Although inconsistent with previous statements, including
their testimony at trial, petitioners now argue that in 1992 they
purchased the property with the intent to build a residence
thereon not for them to live in but for them to resell for a
profit.
Respondent argues that the property at all relevant times
constituted a personal asset of petitioners and was not held for
resale and, therefore, that the purported sale of the property to
the Trust does not give rise to an allowable capital loss and
that the claimed capital loss carryover deductions for 1998 and
1999 were properly disallowed.
In Jones v. Commissioner, 152 F.2d 392, 393 (9th Cir. 1945),
a capital loss deduction was disallowed relating to the sale of
property on which the taxpayers intended to build their personal
residence. The taxpayers in Jones never lived on the property.
Instead, they built their residence elsewhere and, after making
extensive improvements to the property, they sold it at a loss.
See also Guffey v. United States, 339 F.2d 759 (9th Cir. 1964).
Petitioners attempt to distinguish Jones. Petitioners argue
that Jones does not apply to losses claimed under section 165
because Jones was decided prior to enactment of section 165 and
the regulations thereunder. Jones however involved section 23 of
the Internal Revenue Code of 1939, the predecessor to section
165, which limited the deductibility of losses of individuals to
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