## Facts

- Edward G. Lowry, Jr. and Ruth D. Lowry owned, in substance, a summer residence on Martha’s Vineyard within a cooperative community structure.
- In 1967, they stopped using the house as a personal residence and immediately listed it for sale at a price substantially above then-current fair market value, anticipating appreciation.
- After 1967, they did not use the property for recreation or family living; they visited to open/close and maintain it, occasionally sleeping there incident to maintenance, and once yearly hosted a shareholders’ meeting.
- They did not attempt to rent the property, citing business reasons including keeping it ready to show, financial impracticality of rental, and cooperative restrictions on renting.
- The IRS allowed similar maintenance deductions for 1968–1969 but disallowed the claimed 1970 deductions and assessed additional tax.
- The property was ultimately sold in 1973 for the listing price originally set in 1967.
- The Lowrys paid the assessed amount and filed a federal tax refund suit seeking recovery for the 1970 disallowance.

## Issues

1. Whether a former personal residence that is abandoned for personal use and held for sale, without rental efforts, can be treated as “property held for the production of income” so that maintenance expenses are deductible under I.R.C. § 212 rather than barred by I.R.C. § 262.

## Decision

- Judgment for the taxpayers.
- The court held the property had been converted to “property held for the production of income” by 1970.
- The 1970 maintenance and care expenses were deductible under I.R.C. § 212.
- The taxpayers were entitled to a refund of the assessed tax and interest.

## Legal Principles

- Whether property is “held for the production of income” under I.R.C. § 212 depends on the totality of facts and circumstances, including abandonment of personal use and objective profit intent.
- A taxpayer need not rent (or attempt to rent) a former residence to establish § 212 status if the property is held solely for profit through appreciation and sale and the nonrental decision is supported by credible business reasons.
- Once personal, living, or family use has ceased and expenses are incurred to conserve and maintain property held solely for profit, I.R.C. § 262 does not bar deduction of those expenses otherwise allowed by I.R.C. § 212.

## Conclusion

The court allowed § 212 deductions for maintenance expenses where the taxpayers stopped personal use of a vacation home, kept it on the market for a profit-motivated sale, and maintained it solely to preserve sale value, even though they never sought rental income.


Lowry v. United States, 384 F. Supp. 257 (D.N.H. 1974)