National Industrial Investors, Inc. - Page 20

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            interest on the McMahon Loan applies to both petitioner's 1988                             
            net operating loss and to the current years.                                               
                  Respondent denied all of petitioner's depreciation                                   
            deductions for lack of substantiation of its basis in the Burke                            
            Property and for failure to establish a method of depreciation.                            
            Petitioner, however, has established a method of depreciation and                          
            also proven a substantial portion of its unadjusted basis in the                           
            Burke Property.  When Senter Associates incorporated and formed                            
            petitioner in a section 351 transaction, in which no gain was                              
            recognized, the basis of the Burke Building was carried over to                            
            petitioner from the prior partnership.  Proof of Senter                                    
            Associates' basis in the building, therefore, establishes                                  
            petitioner's basis.                                                                        
                  Senter Associates assumed a $304,271.63 mortgage encumbering                         
            the Burke Building when it purchased the property from Parr.  No                           
            credible evidence proves that Senter Associates paid any more for                          
            the Burke Building.  During the time it held the building, the                             
            partnership accumulated $15,666.91 in depreciation.  Petitioner's                          
            unadjusted basis in the Burke Building, therefore, was initially                           
            $288,604.72 to be reduced by $55,000 allocated to the land                                 
            (determined in accordance with the method of allocating the                                
            strike price of Burke's purchase option under the Burke Lease).                            
                  Under the Burke Lease, Burke may purchase the Burke Property                         
            when the lease ends in 1997.  The price includes $76,600 for the                           

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Last modified: May 25, 2011