## Facts

- James E. Austin was a director, officer, and general counsel for two related companies whose offices were then in New York City; Austin’s family lived in Connecticut.
- In 1950, anticipating a possible corporate move to Poughkeepsie, New York, Austin bought about 220 acres in Millbrook, New York for $28,000.
- Austin promptly made substantial improvements to the house and related buildings, spending about $44,250, and sold the family’s Connecticut home in November 1950.
- In April 1951, the companies decided not to relocate their offices from New York City.
- Austin’s family nevertheless moved into the Millbrook property in May 1951; within about a week, he canceled further renovations and listed the property for sale.
- The family continued to live at Millbrook until August 1954, then returned to Connecticut while continuing efforts to sell the Millbrook property.
- On March 18, 1955, Austin sold the house, supporting buildings, and 40 acres for $31,500; the adjusted basis was about $61,500, producing a loss claimed on the 1955 return as $32,229.
- The Commissioner disallowed the deduction as a nondeductible personal loss from the sale of a residence, determining a 1955 deficiency.

## Issues

1. Whether the 1955 loss on the sale of the Millbrook house, supporting buildings, and 40 acres was deductible under I.R.C. § 165(c)(2) as a loss from a transaction entered into for profit.
2. Whether the loss was instead a nondeductible personal loss because the property was held primarily as the taxpayers’ personal residence.

## Decision

- The Tax Court sustained the deficiency and upheld the Commissioner’s disallowance of the claimed loss.
- The court found the property was held primarily for personal residential use rather than for profit within the meaning of § 165(c)(2).
- Petitioners failed to carry their burden to prove that profit motive predominated over personal use.

## Legal Principles

- Losses are deductible under § 165(c)(2) only if incurred in a transaction entered into for profit; losses from the sale of a personal residence are personal and generally nondeductible.
- The taxpayer bears the burden of proving the property was acquired and held primarily for profit; the Commissioner’s determination is presumed correct.
- Mixed motives may exist, but the controlling question is whether profit motive predominated; objective conduct and use outweigh after-the-fact statements of intent.
- A belief that property is a “bargain,” or a hope of appreciation and resale gain, does not by itself convert residential property into profit-motivated property.

## Conclusion

The Tax Court held that the Millbrook property served as the taxpayers’ residence for an extended period and that the surrounding conduct, including the nature of improvements and sustained personal occupancy, showed a primarily personal purpose; therefore, the claimed § 165 loss deduction was denied as a nondeductible personal loss.


Austin v. Commissioner, 35 T.C. 221 (1960)