J. Clark and Mary R. Bundren - Page 6




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          Petitioners’ Sale of the 116th East Ave. Property                           
               On August 23, 1996, petitioners sold the 116th East Ave.               
          property for $61,600.  Petitioners incurred closing costs of                
          $10,668 on this sale.                                                       
          Petitioners’ Federal Income Tax Returns                                     
               With respect to the exchange, petitioners reported neither             
          gain nor loss, nor did they mention the exchange on either their            
          1994 or 1995 Federal income tax return.  On their 1995 Federal              
          income tax return, petitioners claimed depreciation of $5,186 on            
          the 116th East Ave. property.2  On their 1996 Federal income tax            
          return, petitioners claimed a $159,820 loss on the sale of the              
          116th East Ave. property.                                                   
                                       OPINION                                        
          A.  Petitioners’ Basis in the 116th East Ave. Property                      
               Respondent determined that petitioners’ adjusted basis in              
          the 116th East Ave. property immediately after the exchange was             
          $67,500, rather than $147,206, as asserted by petitioners.  Using           
          this redetermined basis, respondent determined that petitioners             
          are entitled to depreciation deductions with respect to the 116th           
          East Ave. property of $1,650, rather than the $5,186 that they              




               2 Apparently, on their 1994 Federal income tax return,                 
          petitioners claimed a $1,512 depreciation deduction with regard             
          to the 116th East Ave. property.  This deduction is not in                  
          dispute here.                                                               





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