Brief Fact Summary. Petitioners bought a house in Ohio and subsequently moved to California. Unable to sell the Ohio house, they rented in out for a number of years. Eventually they were unable to continue to make the mortgage payments and were forced to deed the property back to the bank.
Synopsis of Rule of Law. A capital asset does not include property used in a trade or business, including real property.
Issue. Does Petitioners’ disposition of the real property at a loss constitute an ordinary loss fully deductible in the year sustained, or a capital loss as a loss carryover?
Held. Commissioner Sacks issued the opinion for the Tax Court of the United States in affirming the Commissioner and holding that the loss was not a capital loss but an ordinary one deductible in the year sustained.
Discussion. The Tax Court found that the evidence proved that the property was used in a trade or business and was not a capital asset. Petitioners rented out the property for four years, at a substantial rent, and deducted expenses related to the rental activity.