"a rental for less than fair market value will most likely not qualify as property being held for the production of income"
How later courts described this case
- "a rental for less than fair market value will most likely not qualify as property being held for the production of income"
Written by the judges who cited it.
The opinion
Kórner, J., concurring: I concur in the majority opinion, both as to the result and the reasoning by which that result was reached. I write this concurring opinion only to call attention to one aspect of this case which might not be readily apparent from a first reading of the majority opinion.
In this case, respondent determined that the deductions claimed by petitioners for depreciation, insurance, and miscellaneous expenses incurred while renting their former residence should be disallowed, on the ground that the rental of that property prior to sale was not an activity engaged in for profit, within the meaning of section 183. The majority opinion correctly finds and holds that petitioners were not engaged in the trade or business of renting this property, and further that the property was not rented with the purpose of making a profit.
In these circumstances, section 183(b) provides for the deductions which shall be allowable. Section 183(b)(1) allows:
the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, * * *
In the years in question, petitioners had expenses of this type as follows:
1977 1978 Expense
$1,505.28 $4,911.68 Mortgage interests
252.27 720.32 Property taxes ....
1,757.55 5,632.00 Total .
Section 183(b)(2) further allows deductions to taxpayers in the present situation, as follows: •
a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).
Applying these provisions to the facts of the instant case, therefore, petitioners had gross income from this property and expenses allowable under section 183(b)(1) as follows:
1977 1978 .
Gross income ... $1,271.00 $2,717
Sec. 183(b)(1) expenses (from above) . 1,757.55 5,632
Remaining gross income . 0 0
The deductions in issue here were of the type allowable only with the limitations described in section 183(b)(2) and, since there was no gross income left to absorb such deductions after subtracting the deductions allowable by section 183(b)(1), respondent correctly determined and the majority opinion correctly holds that such deductions are not allowable in this case. The majority opinion, however, should not be misread as holding that deductions of the type in issue here would never be allowable. If all the facts in the present case were the same, with the single exception that the gross rental income derived by petitioners from this rental property were $7,500 in each year, the claimed deductions would clearly have been allowable under section 183(b)(2), since there would have been sufficient gross income left, after subtracting the section 183(b)(1) deductions, to absorb the amounts claimed. This point is inferentially recognized in the majority opinion (see majority opinion, note 7), but I think it deserves emphasizing here, lest our holding in this case be stretched further than it was intended to reach. Although petitioners here were not entitled to claim deductions under section 162, 167, or 212, as the majority says, because they did not qualify at all under those sections, they were still entitled to some deductions, to the extent permitted by section 183(b). See Brannen v. Commissioner, 78 T.C. 471, 500 (1982) (Court reviewed).
Nims, J., agrees with this concurring opinion.