N, a real estate agent by profession, became entitled to old age social security insurance benefits in October 1958 when he attained 66 years of age.

In that year, N had assisted in the sale of an apartment complex, for which he was paid a commission in the form of title to another piece of property. This parcel of land was subject to a mortgage and, at the time of N’s receipt of title to the land, had equity of $2,200.

N included the $2,200 in his reported earnings for the year 1958. He held onto the property as an investment until it was condemned by the city in 1960 and sold at an amount just enough to cover the mortgage.

N deducted a $2,200 bad debt loss from his social security earnings for the year 1960, showing that he made $84 that year in net earnings from self-employment, despite the fact he had worked full time as a realtor that year. Because this amount was less than $1,200 (the threshold amount that year for work deductions from social security benefits), he claimed his benefits were not subject to work deductions.

N was a cash basis taxpayer.

Two questions arose: 1) did N properly include the $2,200 equity in the parcel of land in his 1958 Social Security net self-employment earnings; and 2) did N properly deduct a $2,200 loss in 1960 from his self-employment earnings?

It was held that N did properly include the equity in his 1958 earnings, because the definition of earnings includes money and in kind property received as remuneration for goods or services.

However, it was held that N should not have deducted the $2,200 loss in 1960 from his social security net self-employment earnings because the property was not held primarily for sale to customers in the ordinary course of business; but rather, was a capital gain.

Because N was under the age of 72 and had earned more than the exempt amount in 1960, his social security benefits were subject to work deductions, although he was still able to deduct the loss on his tax return filed with the IRS.

See Social Security Ruling (SSR) 62-31.

This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.