Kalb v. Commissioner

LOUIS KALB, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Kalb v. Commissioner

Docket No. 19421.

United States Board of Tax Appeals

15 B.T.A. 865; 1929 BTA LEXIS 2778;

March 14, 1929, Promulgated

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1. DEPRECIATION - GAIN FROM SALE. - Held, that in computing gain from sale of real estate, due allowance must be made for the amount of depreciation sustained from March 1, 1913, to date of sale in 1920, even though no deductions were taken therefor in tax returns for prior years. Even Realty Co.,1 B.T.A. 355">1 B.T.A. 355.

2. ID. - The evidence establishes that the reasonable expected life of the houses involved in this action was 37 years after March 1, 1913. Held, that the March 1, 1913, value should be depreciated on the basis of one thirty-seventh of that value for each year.

S. P. Huntington, Esq., for the petitioner.

J. A. O'Callaghan, Esq., for the respondent.

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TRUSSELL

Respondent determined a deficiency in the amount of $129.82 in petitioner's income tax for the year 1920 as a result of his adding to net income the amount of depreciation computed at a rate of 4 per cent upon the March 1, 1913, value of buildings to the date of sale in 1920. Petitioner assigns as error respondent's action of (1) adding any of said amount to income and (2) in using a rate in excess of 2 per cent.

FINDINGS OF FACT.

Petitioner resides at Green Bay, Wis.

In 1900 petitioner acquired lots 4, 6, and 9 in block 62 in the City of Green Bay and the frame houses thereon. The said land had a value of $3,250 and the buildings thereon had a value of $10,333 on March 1, 1913. During the year 1920 petitioner sold the said property for the total sum of $14,750, and in his income-tax return for that year reported a profit of $1,500 from that sale. In his tax returns for prior years, petitioner took no deductions on account of depreciation sustained on the property in question, but in his return for the year 1920 he took a deduction in the amount of $50 as depreciation on the said buildings.

The respondent determined that the buildings had a remaining useful life of 25 years from March 1, 1913, and computed depreciation at the rate of 4 per cent upon $10,333 from that date to the date of sale in 1920, or a total of $2,824.35 depreciation. Respondent determined that the gain realized upon the sale was the difference between the sale price of $14,750 and the March 1, 1913, value of $13,583, plus depreciation sustained in the amount of $2,824.35 or $3,991.35.

OPINION.

TRUSSELL: Under authority of the Board's decision in , we must sustain respondent's method of computing the gain realized upon the sale of petitioner's property in 1920.

Petitioner contends that respondent erred in using a depreciation rate in excess of 2 per cent and in support thereof offered the testimony of one witness that it was his opinion that with ordinary repairs the buildings in question had a life of from 20 to 25 years from 1927.

The testimony of witnesses produced at the trial is convincing that the expected life of the houses herein involved was from 20 to 25 years after the date of the testimony, which was in 1927. This would make the total life of the buildings from 47 to 52 years. We are, therefore, of the opinion that the expected life should be taken to be 50 years and, in view of the fact that substantially 13 years had passed prior to March 1, 1913, the established March 1, 1913, value of $10,333 should be depreciated at the rate of one thirty-seventh of that value for each period of 12 months between 1913 and the date of sale.

The deficiency should be recomputed in accordance with the findings of fact and opinion.

Judgment will be entered pursuant to Rule 50.