Internal Revenue Service
Revenue Ruling
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smRev. Rul. 54-95
1954-1 C.B. 98
Sec. 1001
IRS Headnote
When a residential estate, which has been acquired and held by a taxpayer for a number of years as a single unit, is sold in two parcels during the taxable year, the sale of each parcel is treated as a separate transaction and the gain realized or loss sustained is computed separately on each sale. Any losses sustained on the sale of a personal residence are not deductible.
Full Text
Rev. Rul. 54-95
Advice is requested whether a residential estate sold in two parcels during a taxable year is treated as one transaction or two separate transactions for Federal income tax purposes.
In the instant case, the taxpayer purchased 245 acres of land in 1927 for approximately 25 x dollars for the purpose of building a home thereon. Immediately thereafter the taxpayer caused to be built thereon a large manor house, together with a manager's residence and other extensive improvements at a total cost of approximately 425 x dollars. The property at all times thereafter was held by the taxpayer solely for personal residential purposes as a single integrated unit, and not for the purpose of investment, resale, or the production of income. In 1952 the taxpayer attempted to sell the property as a whole and single unit, but was unsuccessful. In the early part of 1953, the taxpayer negotiated a sale of approximately 50 acres of the property containing the manor home and all the improvements made on the property for approximately 175 x dollars, and in the latter part of the same taxable year he sold the remaining acreage to a separate purchaser for approximately 380 x dollars.
Assessment of Federal income taxes is made on the basis of an annual accounting period. Burnett v. Canford & Brooks Co. , 282 U.S. 359, Ct.D. 277, C.B. X-1, 363 (1931); United States v. Ellis R. Lewis , 340 U.S. 590, Ct. D. 1738, C.B. 1951-1, 21. However, this does not permit separate sales and legal transfers of property to be treated as one transaction merely because such sales occur in the same taxable year. Under the facts in this case to permit the taxpayer to treat the separate sales of his residential estate as one integrated transaction would in effect, alter the rule set forth in section 39.23(e)-1(e) of Regulations 118, that losses on personal residences are not deductible. Further, if these sales had been made within a 3-day period which spanned 2 taxable years different tax results would necessarily be reached under the rule of accounting by annual periods. There is no legal or equitable basis for treating such sales as one integrated transaction.
Accordingly, it is held that when a residential estate, which has been acquired and held by a taxpayer for a number of years as a single unit, is sold in two parcels during the taxable year, the sale of each parcel is treated as a separate transaction and the gain realized or loss sustained is computed separately on each sale. Any losses sustained on the sale of a personal residence are not deductible.