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these three factors of production in nursery operations.
Consequently, this comparison is of little, if any, probative
value. Second, the location premium itself represents pure
profit, which ought to be included in the landowner’s return.
Third, a rate of return as high as 10 percent has not been
justified. Petitioner’s own expert estimated that a 2-percent
premium would adequately compensate an investor for the risks of
ownership. The $25,000 location premium alone provides more than
that, measured either in relation to the Maschmeyers’ original
investment cost or the current value of their investment.
Finally, Maschmeyer included in his calculation a base rental
amount equal to the market rent for land used to grow corn and
beans ($37,500 or $150 per acre). We fail to see the relevance
of this item and accordingly exclude it. The total of the
justifiable items enumerated above does not exceed $65,000.
$20,584 average borrowing cost
9,125 depletion cost
25,000 location premium/profit
54,709
We need not make our own determination of fair rental value.
Petitioner has justified no more than the amount allowed by
respondent.
2. Depreciation Deductions
Respondent disallowed depreciation deductions claimed by
petitioner for improvements to a residence occupied by Maschmeyer
during the years at issue. Section 167 authorizes a depreciation
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