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The second issue for decision is whether respondent properly
reallocated ME's bases in its land and depreciable real property.
On its 1992 return, ME claimed a basis in land in the amount
of $60,000, and a basis in nonresidential real property in the
amount of $945,286.23.6 Respondent disallowed ME's claimed bases
and determined that $377,735 is properly allocated to land. As a
result of the reallocation, respondent disallowed $11,615 of ME's
claimed depreciation deduction.
In their post-trial briefs, the parties address only the
proper allocation of the purchase price of the Miramar shopping
center that was listed in the purchase and sale agreement.
Respondent maintains that $377,735 of the $745,000 purchase price
is properly allocated to land. Petitioners maintain that only
$60,000 of the purchase price is properly allocated to land.
When a combination of depreciable and nondepreciable
property is purchased for a lump sum, the lump sum must be
apportioned between the two types of property to determine their
respective costs. In making this allocation, section 1.167(a)-5,
Income Tax Regs., provides:
6 Apart from the purchase agreement, there is no evidence
in the record as to what portion of the claimed basis in
nonresidential real property was claimed as ME's purchase price
for the shopping center's existing buildings as distinct from its
capital expenditures incurred during 1992 for renovations. Based
on the amounts listed in the purchase agreement, we find that
$685,000 of the claimed basis was claimed as purchase price and
the remainder was claimed as capital expenditures.
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