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decreased by the greater of amounts allowed or allowable as
depreciation deductions. Secs. 1011, 1012, 1016(a)(1) and (2).
On July 18, 1991, petitioner purchased a Mack truck for
$14,000, and paid an additional $500 for a warranty. At some
undisclosed time in 1993, petitioner sold the Mack truck for
$12,000. Petitioner computed her depreciation deductions on the
truck using a basis of $14,500, the original cost of the truck
increased by the $500 warranty expenditure. Petitioner applied
the straight-line method of depreciation over a 5-year recovery
period to the $14,500 basis in order to claim depreciation
deductions of $1,450 and $2,900 for tax years 1991 and 1992,
respectively.
Respondent argues that for the 1993 taxable year petitioner
had gain of $2,350 on the sale of her truck. Respondent
calculated the gain by subtracting petitioner's adjusted basis,
calculated to be $9,650 ($14,000 original cost - $4,350 of
depreciation deductions), from the truck sale proceeds of
$12,000.15
15 Petitioner claimed depreciation deductions using a
$14,500 adjusted basis, rather than a $14,000 adjusted basis,
which yielded petitioner larger depreciation deductions.
However, in calculating her adjusted basis for purposes of
determining gain on the disposition of the property, the full
amounts of depreciation deductions previously claimed by
petitioner decrease her basis in the truck, even though she was
not entitled to deduct the full amounts. See sec. 1016(a)(2);
sec. 1.1016-3(a)(1), (b), Income Tax Regs.
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