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Wasnok (Ps) purchased a home in Cincinnati, Ohio in 1960. A substantial portion of the purchase price was borrowed on a note secured by a first mortgage. In 1961, Ps decided to move to California, and they listed the home for sale, but it did not sell. They then leased the property at $225.00 per month in rent. From 1961 to 1965, the property was leased at an average rental of $200 per month. The property was also listed for sale but with no results for an offer over the amount of the mortgage on the property. By 1965, Ps executed a deed conveying their interest in the property to the mortgage company in satisfaction of their balance due on the note; $24,421.04. During the taxable years 1961 -1964, Ps reported the rental income and took expense claims including depreciation. Total claims against the property were $4,697.42. Ps did not file claims in 1965 and 1966 because no tax appeared to be due. On their separate returns for 1967, Ps claimed a capital loss carryforward for $1,000 which was based on the 1965 disposition of the house. Ps also claimed a $389 carry forward deduction in 1968. The IRS disallowed the claims as it found that the loss involved an ordinary loss deductible in the year sustained, 1965, rather than a capital loss subject to carry over provisions.

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