Court Opinion

ID: 4614104
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:54:55.124477+00
Date Added: 2024-06-11T07:54:43.881083
License: Public Domain

THOMAS B. EASTLAND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Eastland v. CommissionerDocket No. 9762.United States Board of Tax Appeals10 B.T.A. 1245; 1928 BTA LEXIS 3927; March 8, 1928, Promulgated *3927  Loss ON SALE OF PROPERTY. - The March 1, 1913, value of certain real property determined upon the evidence to be in an amount less than cost and greater than the sale price of the same property in 1922.  Held, that the difference between the 1913 value decreased by allowable depreciation and the selling price is the measure of the loss sustained by the petitioner.  John W. Parker, Esq., for the petitioner.  Maxwell E. McDowell, Esq., for the respondent.  TRUSSELL *1245  The Commissioner's deficiency letter dated October 13, 1925, which is the basis of this proceeding, sets forth his determination of a deficiency in the amount of $2,136.12 for the calendar year 1922.  The petitioner alleges that the Commissioner erred in his determination in disallowing a deduction for a loss of $9,226.62, alleged to have been sustained from the sale of Mill Valley property known as "Burlwood," having an alleged value of $16,575 on March 1, 1913.  FINDINGS OF FACT.  Petitioner is a resident of San Francisco, Calif.  Between 1896 and 1899 his parents acquired the land and built buildings on the property which became known as "Burlwood," situated in the*3928  village of Mill Valley, Calif.  The land and buildings constructed thereon cost approximately $45,500.  The land consisted of approximately five acres and was laid out, landscaped and the buildings arranged to make a high class country residential estate.  Early in 1899 this property was owned by Alice L. Eastland, petitioner's mother.  She died April 16, 1899, and in the course of the probate of her estate, appraisers estimated the value of this property at $18,000 at the time of her death.  This property was, under decree of the Superior Court of the State of California, distributed on June 2, 1911, to the petitioner and his brother, Joseph L. Eastland, each receiving an undivided one-half interest therein.  Joseph L. Eastland died on March 19, 1919, and his one-half interest in this property was, during the process of probating his estate, valued at $7,500.  About 1896 there was constructed upon the land a seventeen room, well built, English style residence, with hardwood floors, good plumbing, and pebble dash on the outside, a studio, a steam heating plant and laundry building, with servants' living quarters on the second floor.  All of the buildings were of very substantial*3929  frame construction upon concrete foundations.  Hot houses were constructed *1246  for growing flowers and the grounds were landscaped with rock walls, shrubs, trees, flowers and lawns.  A caretaker was kept on the place at all times, and the buildings were kept in constant repair.  At the request of petitioner in 1909, H. A. Klyce and R. F. Parsons made an appraisal of the Burlwood property.  Due to the sound and solid construction of the houses and the excellent state of repair in which they were kept, Klyce and Parsons estimated a rate of depreciation of 1 per cent a year on the residence and studio and 2 per cent a year on the laundry building.  In arriving at their valuations, Klyce and Parsons used those rates of depreciation applied to a value of $28,000 for the buildings in 1899, which was approximately their cost.  They also considered sales and market values per front foot of small building lots in the vicinity of Burlwood.  There were very few sales, if any, of large estates.  H. A Klyce has been a contractor and builder since 1892, and has acquired knowledge of the cost of construction of various kinds of buildings and dwellings, and he also has made appraisals*3930  of buildings already erected.  He has resided in Mill Valley since 1885 and has known the property in question since it was constructed, and has made the necessary repairs thereon from time to time.  Klyce has bought and sold property in the vicinity of Burlwood and is familiar with the March 1, 1913, market values of real estate in Mill Valley.  Klyce placed the March 1, 1913, market value of Burlwood as $17,900 for the land and $24,000 for the buildings, or a total value of $41,900.  In placing that value Klyce has taken into consideration the cost of Burlwood, an estimated depreciation and the value of small lots on a front foot basis.  R. F. Parsons resided in Mill Valley for about eighteen years beginning in 1896, and was engaged in the banking business as loan teller, which occupation required him to make many appraisals on real estate for the bank.  He was familiar with land values and improvements thereon in Mill Valley from 1896 on, and he was very familiar with the particular estate in question, known as Burlwood.  Parsons placed the March 1, 1913, market value of Burlwood as $17,900 for the land and $23,800 for the buildings, or a total value of $41,700.  Parsons arrived*3931  at the value by the same method used by Klyce.  During the years 1909 to 1913, Mill Valley, which is twelve miles from San Francisco, increased in population, but the town grew away from Burlwood, in the immediate vicinity of which were rather large estates.  The land values in the immediate vicinity of Burlwood remained about the same during those years, for there was practically no market for large estates.  In the direction toward San Francisco, *1247  the land was subdivided into small building lots.  The buildings at Burlwood were kept in excellent condition up to and subsequent to 1913.  Subsequent to 1913 the increasing numbers of tourists going through Cascade Canyon and the surrounding hills from which one could see a beautiful view, caused a decline in value of Burlwood and adjoining property for residential purposes.  There were few prospective purchasers of an estate such as Burlwood in 1913, as in 1922, for it would require a person of means to maintain such a residence.  In 1922 Burlwood was sold for approximately $15,000.  The petitioner received $7,348.38 as his net one-half share of the proceeds from the said sale.  He claimed the March 1, 1913, value*3932  of his undivided interest in Burlwood to be $16,575, and in making his income-tax return for the year 1922, deducted an amount of $9,226.62 as the loss sustained on the said transaction.  The Commissioner disallowed the said deduction on the ground that sufficient proof had not been adduced to establish the March 1, 1913, value of the property.  OPINION.  TRUSSELL: The outstanding facts in this record prove that between 1896 and 1899, the property here under consideration cost approximately $45,500, that $28,000 of that amount was the cost of the buildings and improvements to the land and that the property was sold in 1922 for the amount of $15,000.  It is thus clearly established that between 1899 and 1922 this property, due to depreciation and obsolescence, suffered a decline in value from $45,500 to $15,000.  The record contains the testimony of one of the man, who in 1899, placed a value of $18,000 upon this property.  The record also contains the testimony of the two men, who, in 1909, placed a value of $41,900 upon this property.  These men testified at length as to the manner in which they arrived at this valuation, and from their testimony it appears that they regarded*3933  the land value as having remained stationary, and they applied a depreciation rate of 1 per cent upon the residence and studio, and 2 per cent upon the laundry building.  This testimony would be convincing were it not for the fact that this property remained vacant and unused except for the presence of a caretaker during all of the period from 1899 and 1922, and that the record further shows that during all of this period there was no demand or sale for an estate as large and expensive as the one here under consideration, that the village developed into a community of small homes and grew away from the location of the property here under consideration, all of which convinces us that *1248  in addition to ordinary depreciation of buildings, this property suffered obsolescence between 1899 and 1913 to a considerable degree, and that factor must be reflected in the March 1, 1913, value.  All of these things considered, we have arrived at the conclusion that the March 1, 1913, value of land and buildings was: Land, $15,000; residence and studio, $16,970; laundry, $930; total, $32,000; and that from March 1, 1913, to the date of sale the residence and studio sustained depreciation*3934  at the rate of 2 per cent and the lanudry at the rate of 3 per cent, and that petitioner's loss upon the sale in 1922 should be computed upon the basis of the foregoing figures.  Judgment will be entered upon 15 days' notice, pursuant to Rule 50.