Miguel Espinoza and Mariaclariza Montoya - Page 7




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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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