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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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