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4. Expectation That Assets Used in the Activity May
Appreciate in Value
The expectation that assets used in the activity will
appreciate in value sufficiently to lead to an overall profit
when netted against losses may indicate a profit motive.
Engdahl v. Commissioner, 72 T.C. at 668-669; Lapinel v.
Commissioner, T.C. Memo. 1989-685, affd. 930 F.2d 911 (2d Cir.
1991); sec. 1.183-2(b)(4), Income Tax Regs. Petitioner argues
that the appreciation of Falling Water Way and Gavilan Hills,
combined with the value of her horses, is significant enough to
offset all prior losses.
a. Falling Water Way and Gavilan Hills
Petitioner asserts that Falling Water Way and Gavilan Hills
are held in connection with her horse activity. Respondent, on
the other hand, argues that her holding of real property is an
activity separate from petitioner’s horse activity. To make this
determination, section 1.183-1(d)(1), Income Tax Regs., states:
all facts and circumstances * * * must be taken into
account. Generally, the most significant facts and
circumstances in making this determination are the
degree of organizational and economic interrelationship
of various undertakings, the business purpose which is
* * * served by carrying on the various undertakings
separately or together * * * and the similarity of
various undertakings. * * * The taxpayer’s
characterization will not be accepted * * * when it
appears that his characterization is artificial and
cannot be reasonably supported under the facts and
circumstances of the case. If the taxpayer engages in
two or more separate activities, deductions and income
from each separate activity are not aggregated either
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