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rental units initially acquired by an Entity through purchase
from third parties and rented for the first time and for rental
units rented by an entity on a subsequent rental contract, each
year's depreciation deduction was equal to the cost of the rental
units multiplied by a fraction. The numerator of the fraction
was the current year's income from that rental unit. The
denominator of the fraction was 300 percent of the rental unit's
initial cost, which was the amount of total gross rental that
would be received if the initial rental contract on such rental
went to term.
Guaranteed attached Statement 2 to its tax return for the
taxable year ending December 31, 1987. The only information
Statement 2 provided was that the type of property being
depreciated was "RENTAL UNITS". The statement did not say that
Guaranteed made an election of the income forecast method or of
any other method of depreciation. Rather, the Statement 2
"Method" column was left blank. Nor did it refer to section
168(f)(1) or to any other provision of the Code. Statement 2 did
not provide the year the rental property was placed in service--
in the "Date Acquired" column, Statement 2 says "VAR". In
addition, Statement 2 did not provide the unadjusted basis of the
rental property--the "Cost or Basis" column is blank.
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Last modified: May 25, 2011