## Facts

- William C. Horrmann inherited a house and garage in Staten Island, New York, in February 1940.
- He spent about $9,000 redecorating the property and moved in around October–November 1940, using it as a personal residence for about two years.
- In October 1942, he moved out, abandoned the property as a residence, and made continuing efforts to rent or sell it, but never secured a tenant.
- The property was sold in June 1945 for $45,000; it had been valued at about $60,000 when acquired, producing a loss.
- For 1943–1945, the taxpayers claimed depreciation deductions and maintenance/conservation expenses while the property stood vacant and was offered for rent or sale.
- The Commissioner disallowed (1) depreciation and maintenance/conservation deductions for 1943–1945 and (2) the claimed 1945 long-term capital loss and its carryover to 1946.

## Issues

1. After abandonment of the home as a personal residence and efforts to rent or sell it, was the property “held for the production of income” such that depreciation and maintenance/conservation expenses were deductible for 1943–1945?
2. Was the 1945 loss on sale deductible as a loss incurred in a “transaction entered into for profit,” permitting a long-term capital loss and a 1946 carryover?

## Decision

- The Tax Court held the property was held for the production of income after October 1942 and allowed depreciation deductions for 1943–1945.
- The Tax Court allowed maintenance and conservation expense deductions for 1943–1945.
- The Tax Court held the 1945 loss on sale was not incurred in a transaction entered into for profit and disallowed the long-term capital loss.
- Because the 1945 capital loss was disallowed, the claimed 1946 capital loss carryover was also disallowed.

## Legal Principles

- Property formerly used as a personal residence can become “held for the production of income” when the taxpayer abandons personal use and genuinely holds the property for rental or income-producing purposes, even if no tenant is obtained.
- Ordinary and necessary expenses for the management, conservation, or maintenance of property held for the production of income are deductible during the period it is so held.
- A loss on the sale of property is deductible under the “transaction entered into for profit” standard only if the relevant transaction is profit-motivated; later efforts to rent or sell a former residence do not necessarily convert the sale loss into a profit-transaction loss where the property’s acquisition and primary use were personal.

## Conclusion

The court treated the post-abandonment period as an income-oriented holding that supported depreciation and upkeep deductions, but it treated the sale loss as a nondeductible personal loss because the property’s acquisition and principal use were residential rather than profit-seeking.


Horrmann v. Commissioner, 17 T.C. 903 (1951)