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B. Discussion
Taxpayers have long been allowed asset
depreciation deductions in order to allow them to
allocate their expense of using an income-producing
asset to the periods that are benefited by that asset.
* * * an allocation of depreciation to a given year
represents that year’s reduction of the underlying
asset through wear and tear. * * *
Simon v. Commissioner, 103 T.C. 247, 253 (1994), affd. 68 F.3d 41
(2d Cir. 1995). Such wear and tear, or “using up”, can be
thought of as being a gradual sale of the capital asset. United
States v. Ludey, 274 U.S. 295, 300-301 (1927). The estimation of
the wear and tear of the capital asset for a given period is
based on the historical cost and does not take into consideration
later fluctuations in valuation through market appreciation.
Fribourg Navigation Co. v. Commissioner, 383 U.S. 272, 277
(1966). Originally, depreciation was calculated by apportioning
the historical cost of the asset, less its salvage value, to the
period the taxpayer expected to use the asset in his business.
Massey Motors, Inc. v. United States, 364 U.S. 92, 107 (1960).
At one time, taxpayers were required to establish the useful
life of the asset, which was the period the taxpayer expected to
use the asset in his trade or business, and which did not
necessarily coincide with the economic life of the asset. Id. at
104; sec. 1.167(a)-1(b), Income Tax Regs. For assets placed in
service after December 31, 1970 (and before 1981), the asset
depreciation range system (ADR) was the primary means of
determining useful lives. Sec. 1.167(a)-11, Income Tax Regs.
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