- 16 -
tax avoidance motive, the claimed depreciation would provide a
substantial offset to petitioners' other income.
Based on the record as a whole, we conclude that petitioner
was not engaged in any trade or business in regard to the J car
and was not engaged in any activity of selling the J car, or
copies of it, for profit. Thus, his depreciation deductions are
limited by section 183(b)(2) to zero, the amount of his gross
income from that activity in each of the years at issue.
Moreover, petitioner has not established a cost basis in the J
car, even if the expense were otherwise deductible.
Cost Basis
The depreciation deduction is a reasonable allowance for the
exhaustion, wear and tear of property used in a trade or business
or an activity for profit. Sec. 167(a). The allowance is
that amount which should be set aside for the taxable
year * * * so that the aggregate of the amounts set
aside, plus the salvage value, will, at the end of the
estimated useful life of the depreciable property,
equal the cost or other basis of the property * * *
Sec. 1.167(a)-1(a), Income Tax Regs. The basis to be used is
"the adjusted basis provided in section 1011 for the purpose of
determining gain on the sale or other disposition of such
property." Sec. 167(g).9 In the instant case, petitioner's
9 This is the section in effect for property placed into
service during 1989. The section was later renumbered sec.
167(c) by sec. 11812(a)(1)and (2)of the Omnibus Budget
Reconciliation Act of 1990, Pub. L. 101-508, 104 Stat. 1388,
1388-534, for property placed into service after Nov. 5, 1990.
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