#### § 1.1014-7 Example applying rules of §§ 1.1014-4 through 1.1014-6 to case involving multiple interests.

(a) On January 1, 1950, the decedent creates a trust to pay the income to A for life, remainder to B or his estate. The trust instrument provides that if the decedent should survive A, the income shall be paid to the decedent for life. The decedent, who died on January 1, 1955, predeceases A, so that, due to the operation of the estate tax, only the present value of the remainder interest is included in the decedent's gross estate. The trust consists of an apartment building with a basis of $30,000 at the time of transfer. Under the trust instrument the trustee is required to maintain a reserve for depreciation. During the decedent's lifetime depreciation is allowed in the amount of $800 annually. At the time of the decedent's death the value of the apartment building is $45,000. A, the life tenant, is 43 years of age at the time of the decedent's death. Immediately after the decedent's death, the uniform basis of the entire property under section 1014(a) is $32,027; A's basis for the life interest is $15,553; and B's basis for the remainder interest is $16,474, computed as follows:

| *Step 1.* Uniform basis (adjusted) immediately prior to decedent's death: | |
| --- | --- |
| Basis at time of transfer | $30,000 |
| less | |
| Depreciation allowed under section 1016 before decedent's death ($800 × 5) | 4,000 |
| | 26,000 |
| *Step 2.* Value of property included in decedent's gross estate: | |
| 0.40180 (remainder factor, age 43) × $45,000 (value of entire property) | $18,081 |
| *Step 3.* Uniform basis of property under section 1014(a), before reduction required by section 1014(b)(9): | |
| Uniform basis (adjusted) prior to decedent's death | 26,000 |
| Increase in uniform basis (determined by the following formula) | 7,634 |
| Increase in uniform basis (to be determined) $19,000 (total appreciation, $45,000−$26,000)]= | |
| $18,081 (value of property included in gross estate) $45,000 (value of entire property)] | |
| | 33,634 |
| *Step 4.* Uniform basis reduced as required by section 1014(b)(9) for deductions allowed prior to death: | |
| Uniform basis before reduction | $33,634 |
| less | |
| Deductions allowed prior to decedent's death—taken into account under section 1014(b)(9) (determined by the following formula) | 1,607 |
| Prior deductions taken into account (to be determined) $4,000 (total deductions allowed prior to decedent's death)]= | |
| $18,081 (value of property included in gross estate) $45,000 (value of entire property) | |
| | 32,027 |
| *Step 5.* A's basis for the life interest at the time of the decedent's death, determined under section 1015: 0.59820 (life factor, age 43) × $26,000 | 15,553 |
| *Step 6.* B's basis for the remainder interest, determined under section 1014(a): Basis prior to the decedent's death: | |
| 0.40180 (remainder factor, age 43) × $26,000 | 10,447 |
| plus | |
| Increase in uniform basis owing to decedent's death: | |
| Increase in uniform basis | $7,634 | |
| plus | | |
| Reduction required by section 1014(b)(9) | 1,607 | |
| | | 6,027 |
| | | 16,474 |

(b) Assume the same facts as in paragraph (a) of this section. Assume further, that following the decedent's death depreciation is allowed in the amount of $1,000 annually. As of January 1, 1964, when A's age is 52, the adjusted uniform basis of the entire property is $23,027; A's basis for the life interest is $9,323; and B's basis for the remainder interest is $13,704, computed as follows:

| *Step 7.* Uniform basis (adjusted) as of January 1, 1964: | |
| --- | --- |
| Uniform basis determined under section 1014(a), reduced as required by section 1014(b)(9) | $32,027 |
| less | |
| Depreciation allowed since decedent's death ($1,000 × 9) | 9,000 |
| | 23,027 |
| *Step 8.* Allocable share of adjustment for depreciation allowable in the nine years since the decedent's death: | |
| *A's interest* | |
| 0.49587 (life factor, age 52) × $7,200 ($800, depreciation attributable to uniform basis before increase under section 1014(a), × 9) | 3,570 |
| *B's interest* | |
| 0.50413 (remainder factor, age 52) × $7,200 ($800, depreciation attributable to uniform basis before increase under section 1014(a), × 9) | 3,630 |
| plus | |
| $200 (annual depreciation attributable to increase in uniform basis under section 1014(a)) × 9 | 1,800 |
| | 5,430 |
| *Step 9.* Tentative bases of A's and B's interests as of January 1, 1964 (before adjustment for depreciation). | |
| *A's interest* | |
| 0.49587 (life factor, age 52) × $26,000 (adjusted uniform basis immediately before decedent's death) | 12,893 |
| *B's interest* | |
| 0.50413 (remainder factor, age 52) × $26,000 (adjusted uniform basis immediately before decedent's death) | 13,107 |
| plus | |
| Increase in uniform basis owing to inclusion of remainder in decedent's gross estate | 6,027 |
| | 19,134 |
| *Step 10.* Bases of A's and B's interests as of January 1, 1964. | |
| A | |
| Tentative basis (Step 9) | 12,893 |
| less | |
| Allocable depreciation (Step 8) | 3,570 |
| | 9,323 |
| B | |
| Tentative basis (Step 9) | 19,134 |
| less | |
| Allocable depreciation (Step 8) | 5,430 |
| | 13,704 |