TIETJENS, Judge:
The Commissioner determined a deficiency in petitioners' Federal income tax of $353.50 for taxable year 1965. The only issue for decision is whether petitioners sustained a loss from a nonbusiness bad debt under section 166(d), I.R.C. 1954.
This represents carpeting, lawn work, motel expenses, legal fees, and traveling expenses in connection with the State court proceeding.
FINDINGS OF FACT
This case has been submitted under Rule 30. The stipulation and exhibits attached thereto are incorporated herein by this reference.
Petitioners Harry F. and Shirley Hardy, husband and wife (hereinafter referred to as petitioner and Shirley), resided in Grosse Pointe Park, Mich., at the time they filed their petition herein. They filed their 1965 joint Federal income tax return with the district director of internal revenue at Detroit, Mich.
In April 1964, petitioners entered into a contract with ABC Builders for the construction of a house in Rockford, Ill. Pursuant to the contract, petitioners paid $2,000 as a downpayment on the total contract price of $29,200.
The house was not completed as specified and petitioners refused to close the transaction, although they had taken possession of the premises with the consent of the builder. When completed the house was still unsatisfactory and petitioners refused to conclude the transaction.
ABC sued for specific performance in Illinois Circuit Court. The judgment denied specific performance and awarded title to the builder. However, that court found that in addition to actually taking possession, petitioners had become "intimately involved with the construction" of the house. Therefore, the court ordered petitioners to bear a portion of the loss by paying $1,000 to the builders. In addition, improvements made by petitioners, in the amount of $1,100, vested in the builders. Further, the downpayment of $2,000 was ordered apportioned between the realtor and the builder.
On their 1965 income tax return petitioners claimed $5,515 as a nonbusiness bad debt consisting of the following:
Downpayment ........................................... $2,000 Damages ............................................... 1,000 Expenses of real estatefn1 .............................. 2,515 ------- 5,515
The Commissioner denied the deduction on the grounds that there was no debtor-creditor relationship.
OPINION
Section 166(d) provides for the deductibility of nonbusiness bad debts which are treated as short-term capital losses. Petitioners contend that their loss constitutes a nonbusiness bad debt because (1) the transaction was not in connection with petitioner's trade or business, and (2) the builder had an obligation to return petitioners' deposit should it fail to perform. Petitioners contend that this latter obligation creates the debt required by the Code. Sec. 1.166-1(c), Income Tax Regs.
SEC. 166(d). NONBUSINESS DEBTS. —
(1) GENERAL RULE. — In the case of a taxpayer other than a corporation —
* * * * * * *
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6 months.
(2) NONBUSINESS DEBT DEFINED. — For purposes of paragraph (1), the term "nonbusiness debt" means a debt other than —
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business.
The Commissioner's argument is that there was no debtor-creditor relationship as required by the same section of the regulations. We hold that petitioners are not entitled to the deduction because there was no debt between them and the builder.
The regulation is quite specific in its requirements:
Sec. 1.166-1 Bad debts.
(c) Bona fide debt required. Only a bona fide debt qualifies for purposes of section 166. A bona fide debt is a debt which arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money. * * *
The obligation, to repay the deposit, claimed by petitioners to create the debt, is not evident from the contract between the parties. Therefore, such obligation must necessarily be created by some instrument ancillary to that contract. However, as the facts reveal, there is no evidence of any such ancillary document.
It becomes apparent that what petitioners seek to claim as a debt, is in fact only a judgment against them in a civil suit. Any debt created thereby would be attributable to them as the debtor, and not as the creditor, to whom a deduction might be allowable if the debt was worthless.
Since petitioners sustained these expenditures with regard to a personal item, a residence, there is no provision of the Code under which these expenses are deductible.
Decision will be entered for the respondent.