Estate of James W. Boyle - Page 9




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               We disagree with petitioners, however, that the failure of             
          the above-cited regulations to specify when the adjusted basis of           
          the property involved must be calculated means that petitioners             
          are free to calculate the adjusted basis of the old warehouse by            
          adding to it the cost of constructing the new warehouse.                    
          Although the above-cited regulations do not explicitly address              
          the timing question posed by petitioners, the answer, we believe,           
          flows from section 1.165-7(b)(1), Income Tax Regs.                          
               Petitioners’ calculation of the Boyles’ adjusted basis in              
          the old warehouse as of 1995 assumes that the new warehouse is              
          merely an improvement of the old warehouse and that the cost of             
          that improvement increases the Boyles’ adjusted basis in the old            
          warehouse for purposes of calculating their casualty loss under             
          section 165(a).  This assumption, which is critical to the                  
          success of petitioners’ position, is incorrect because the record           
          in this case clearly establishes that the old warehouse and the             
          new warehouse were separate and distinct properties.  Only the              
          old warehouse was involved in the casualty on December 13, 1993,            
          and it was completely destroyed before the new warehouse was even           
          in existence.                                                               



               7(...continued)                                                        
          provided by sec. 1016.  Secs. 1.1016-2 and 1.1016-3, Income Tax             
          Regs., provide that a taxpayer’s cost basis must be increased by            
          the cost of improvements and betterments made to property, and              
          decreased by amortization, depreciation, and obsolescence.                  





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