Flipping Loss Not Deductible from Income in Child Support Action

May 31, 2013 | Blog, Child Support, Court Decisions, Tax Issues

Icon for author Brian Vertz Brian Vertz

The Superior Court in K.J.P. v. R.A.P., 68 A.3d 974 (Pa.Super. 2013) examined losses emanating from a parent’s investment activity apart from his primary employment.

In addition to his regular employment as a marketing and product development consultant, Father was engaged in the purchase, renovation and sale of residential properties, owning as many as 20 houses at at time. In order to gain tax advantages, Father testified that he sometimes resided in his investment properties, including the house that he renovated and sold in the year of his child support modification proceeding.

In calculating his income, Father claimed that the court must offset the $115,000 loss that he suffered when selling his New Jersey residential property, where he resided for two years. To bolster his argument, Father pointed to the statutory definition of income and the tax treatment of his loss on his federal income tax return. The trial court disagreed, holding that losses on the sale of one’s own residence did not fall within the statutory definition of “income,” which includes gains derived from dealings in property, but not losses. The trial court also observed that Father had not included his “house flipping” profits as part of his income in prior years. The Superior Court affirmed, holding that “taxable income is not the same as net income used to determine support obligations.”

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