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c. Depreciation
The J. Shirleys claimed a deduction for depreciation in the
amount of $19,896 on account of property used by them as (and in)
their personal residence. Such property constituted part of the
rental activity, which Caralan Trust reported as involving the
rental of such property to Alexion Trust. Respondent disallowed
the whole amount of such depreciation.
In pertinent part, section 167 provides:
SEC. 167. DEPRECIATION.
(a) General Rule.--There shall be allowed as a
depreciation deduction a reasonable allowance for the
exhaustion, wear and tear (including a reasonable
allowance for obsolescence)--
(1) of property used in the trade or business, or
(2) of property held for the production of income.
* * * * * * *
(d) Life tenants and beneficiaries of trusts and
estates.–-* * * In the case of property held in trust,
the allowable deduction shall be apportioned between
the income beneficiaries and the trustee in accordance
with the pertinent provisions of the instrument
creating the trust, or, in the absence of such
provisions, on the basis of the trust income allocable
to each. * * *
Caralan Trust apportioned 100 percent of the $19,896
depreciation deduction to the J. Shirleys notwithstanding that
they received only $13,753 (17.81 percent) of the $77,234
distribution of income made by the Caralan Trust to the
J. Shirleys and the J E Shirley Trust (which trust received
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