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and 1994) therefore are not subject to capitalization under the
rules of section 263A or the Treasury regulations thereunder.
Petitioner’s adjusted basis in the Longport property, however,
will include the property’s purchase price ($106,000) reduced by
allowed or allowable depreciation. See secs. 1011, 1012, 1016.
Pursuant to section 263, “any amount paid out for * * *
permanent improvements or betterments made to increase the value
of any property” must be capitalized. This includes any amount
paid or incurred which adds to the value, or substantially
prolongs the useful life, of property owned by the taxpayer. See
sec. 1.263(a)-1(b), Income Tax Regs. However, amounts paid or
incurred for incidental repairs and maintenance of property are
not subject to capitalization. See id. Incidental repairs and
maintenance expenses do not materially add to the value of the
property nor appreciably prolong its useful life, but merely keep
it in an ordinarily efficient operating condition. See sec.
1.162-4, Income Tax Regs.
Respondent argues that all of the expenses characterized as
“Improvements and Repairs” by petitioner constitute incidental
repairs and maintenance which should be treated as ordinary and
necessary expenses under section 162. After reviewing the
record, however, we feel that there is sufficient evidence to
indicate that petitioner completed various projects and expended
significant amounts that materially added value to the property
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