- 23 -
Corp. v. Commissioner, 21 T.C. 817 (1954), affd. in part, revd.
in part 221 F.2d 322 (2d Cir. 1955), affd. 350 U.S. 456 (1956).
Cleveland Allerton Hotel, Inc. involved a hotel that was
built on land subject to a 100-year lease with a $25,000 annual
rental. About 20 years into the lease the hotel owner acquired
the underlying land for $441,250. At the time of the
acquisition, the unimproved and/or unencumbered value of the land
was $200,000, and the adjusted basis for the building was
$267,150. The taxpayer/building owner added to the adjusted
basis of the building, for depreciation purposes, the excess paid
over the $200,000 value of the land. The question considered by
this Court was whether respondent erred in disallowing
depreciation by the taxpayer in excess of the preacquisition
adjusted basis ($267,150).
This Court decided that the taxpayer’s purchase of the land
for $441,250 was the value any purchaser would have paid for land
that had the benefit of an income-producing lease. Accordingly,
it was concluded that the entire acquisition cost represented a
nondepreciable capital expenditure attributable to the cost of
the land. On appeal, the Court of Appeals for the Sixth Circuit
reversed, concluding that the taxpayer was entitled to currently
deduct, as a business expense, the excess of $441,250 over the
$200,000 value of the unencumbered land as a cost of
extinguishing the lease.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011