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(1986). Consequently, a stockholder normally is not entitled to
depreciate property of his corporation because he lacks a direct
economic interest or investment in the property itself. See
Hunter v. Commissioner, 46 T.C. 477, 489-490 (1966).
Generally, a taxpayer’s capital investment in the property
is the cost of acquiring the depreciable property. See Durkin v.
Commissioner, supra; secs. 167(c), 1011, 1012; sec. 1.1012-1(a),
Income Tax. Regs. Petitioners contend that their depreciable
basis is derived from the lenders' assignments to them of
security interests in the property. This presents a question of
whether, under State law, a security interest affords petitioners
an ownership interest sufficient to entitle them to claim
depreciation.
State law is determinative of the parties' rights and
interests, and Federal law is determinative of the Federal income
tax consequences of those rights or interests. Morgan v.
Commissioner, 309 U.S. 78, 80 (1940); Lucas v. Earl, 281 U.S. 111
(1930); Sampson v. Commissioner, 81 T.C. 614, 618 (1983), affd.
without published opinion 829 F.2d 39 (6th Cir. 1987).
Generally, California law provides that a security interest
in personal property is given to secure a payment or performance
of an obligation and not to acquire personal property. See Cal.
Com. Code sec. 1201(37)(a) (West Supp. 1996). The holder of a
security interest is denominated a secured party. The priority
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