Court Opinion

ID: 8591978
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:51:02.278447+00
Date Added: 2024-06-11T16:54:32.972154
License: Public Domain

Larajiore, Judge,
dissenting:
The majority rely on the sections of the Commissioner’s regulations which allow a deduction for expenses and depreciation on property held for the production of income. I agree that these sections are applicable to the property in the instant case, but I do not, however, agree that they provide the grounds upon which recovery can be had.
It is axiomatic in the law of income taxation that in order to obtain a deduction for depreciation there must be an asset which has a tax basis capable of being depreciated. Section 23 (n) of the Internal Eevenue Code of 1939 requires that the basis upon which depreciation is to be computed with respect to any property shall be as provided in section 114. Turning to section 114(a) it states that the basis for depreciation shall be the adjusted basis for determining gain or loss from the sale or other disposition of the property. The question then is what is the basis of this property for the purpose of determining the gain or loss from its sale or other disposition.
Section 113 says that the basis for determining gain or loss is the cost subject to adjustments not here material. It necessarily follows that in order to have a depreciation basis some part of the purchase price must be allocable to the de-preciable asset; i. e., buildings. It has been held, and the regulations so provide, that where a taxpayer purchases property with the intention of demolishing the improvements thereon the entire purchase price is considered allocated to the value of the land. Lynchburg National Bank & Trust Co. v. Commissioner, 20 T. C. 670, aff’d. 208 F. 2d 767. Since land is not a depreciable asset, and none of the cost is assigned to the improvements, there is no tax basis upon which a deduction for depreciation could be based.
The regulations relied on by the majority do not purport to provide a tax basis to property but merely allow a deduction for depreciation where the basis already exists. It follows that since the buildings have a tax basis of zero, there is nothing from which a depreciation deduction could be allowed under the law and regulations.
*221In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amount ■due thereunder, it was ordered on January 9, 1959, that judgment for the plaintiff be entered for $2,032.54, together with interest as provided by law.