Jay M. Anderson and Helen B. Anderson - Page 16

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            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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