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land, including the land on which the Addition was built, and
$502,500 for the buildings and improvements. Under the Burke
Lease agreement, the price of the buildings increases over time,
determined with reference to the Consumer Price Index, whereas
the price of the land does not. Burke, therefore, had an
incentive to bargain for allocating more of the option price to
the land, and Senter Associates had an incentive to bargain for a
low land allocation. The land allocation in the lease,
therefore, is a bargained for allocation and is a strong
indication of the value of the land at that time. Since Senter
Associates paid $21,600 for the land on which the Addition was
built, $55,000 of petitioner's basis in the Burke Building itself
is allocable to land. The depreciable part of petitioner's
unadjusted basis in the Burke Building is therefore $233,604.72.
Petitioner also spent $167,186 to build the Addition.
As for petitioner's method of depreciation, respondent
insists that petitioner failed to establish one. We are
satisfied, however, that petitioner has consistently used the
straightline method of depreciation for the Burke Building with a
useful life of 28-1/2 years, and the 125-percent declining
balance method with a useful life of 30 years for the Addition.
Because petitioner's initial unadjusted depreciable basis in both
the Burke Building and the Addition is lower than the amount
petitioner claims, the depreciation deductions will be
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