- 12 -
believe in any event that the rules with respect to the treatment
of legal fees incurred in connection with the purchase of real
estate are relatively simple and clear. Thus, we do not find
reasonable cause for the error under section 6664(c)(1). On this
record, we sustain respondent's determination that the
underpayment arising from this disallowed deduction is subject to
an accuracy-related penalty under section 6662(b)(1).
Depreciation
Petitioner claimed $6,970 of depreciation on Schedule C of
his 1991 return to which the parties now stipulate he was not
entitled. The amount represents depreciation claimed with
respect to the house petitioner purchased in Florida in 1990.
Petitioner held the house throughout 1991, attempted to rent it,
and obtained insurance designed to provide coverage for a rental.
He was unsuccessful in renting the house and eventually moved
into it himself, although the record does not disclose when.
Respondent asserts that it was negligent for petitioner to
depreciate a house that he never rented and into which he
eventually moved. We think petitioner's negligence depends upon
whether, given the circumstances, he reasonably believed that the
property was depreciable.
Section 167(a) allows a depreciation deduction only if the
property is either used in a trade or business or held for the
production of income. The phrase "held for the production of
income" includes the expectation of gain from the disposition of
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011