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from the returns that petitioners' method of accounting for
depreciation was to recover the acquisition and improvement costs
reported in 1985 separately from the improvement costs reported
in 1986. Petitioners expended a total of $40,359 during 1985 and
1986 to acquire and convert the bus into a motor home; however,
they claimed only $18,517 in total depreciation from 1985 through
1989.5
Pursuant to section 1011(a), the adjusted basis for
determining the gain or loss from the sale or other disposition
of property is the cost of the property determined under section
1012 adjusted as provided in section 1016. Section 1016(a)(2)
provides, in effect, that the basis of the property shall be
adjusted by the amount of depreciation previously allowed, but
not less than the amount allowable, with respect to the property.
Depreciation "allowed" is the amount actually deducted by the
taxpayer and not challenged by the Commissioner. See Virginian
Hotel Corp. v. Helvering, 319 U.S. 523, 527 (1943).
Consequently, the taxpayer's basis in a depreciable asset is
4(...continued)
recovery percentage obtained from statutory tables for the
taxable year in question. See sec. 168(b), I.R.C. 1954 (as
amended).
5Petitioners did not claim a depreciation deduction for
1990, the year the motor home was destroyed. No ACRS deduction
is allowable for the taxable year in which a taxpayer disposes of
property that is not real property or low-income housing. See
sec. 168(d)(2)(B), I.R.C. 1954 (as amended).
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