Tax Court in Brief | Webert v. Commissioner | Sale of Principal Residence

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Tax Litigation:  The Week of April 4th, 2022, through April 8th, 2022

Webert v. Comm’r, T.C. Memo. 2022-32 | April 7, 2022 | Gustafson, J. | Dkt. No. 15981-17

Opinion

Short Summary:  The Weberts married in 2004. Ms. Webert purchased a house on Mercer Island in 2005. That same year, Ms. Webert also was diagnosed with cancer, the treatments for which led to a prolonged period of financial precarity.

The Weberts resided in the Mercer Island house until 2009. Thereafter, Ms. Webert rented out the Mercer Island house, and the couple resided in Mr. Webert’s house in Sammamish, Washington. Ms. Webert sold the Mercer Island house in 2015.

The Weberts filed joint federal income tax returns for tax years 2010 through 2015. During those years, the Weberts reported income from the lease of the Mercer Island house on Schedule E, “Supplemental Income and Loss.” The Weberts reported that they used the Mercer Island home for personal purposes for 14 days in 2010 and zero days in 2011 through 2015. The depreciation schedules that the Weberts attached to their returns for those years mirrored the number of fair rental days reported for the property on their Schedule E. On their 2015 return, the Weberts reported the sale of the Mercer Island house but excluded the gain from gross income.

The Internal Revenue Service (“IRS”) assessed federal income tax for the Webert’s 2015 tax year in connection with the gain on the sale of the Mercer Island house. The Weberts filed a petition with the Tax Court. On motion for summary judgment, the IRS argued that there was no genuine dispute of material fact regarding whether the Weberts could exclude the gain realized from the sale of the Mercer Island house from gross income.

Key Issues

Primary Holdings

Key Points of Law

Insights: This case highlights the importance of being consistent in how things are reported to the IRS. Taxpayers should take a wholistic view of their return submission and not succumb to the temptation of treating each individual item (here, the rental of the Mercer Island home and the claimed e