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reduced the $67,500 by depreciation allowed or allowable of
$26,470, resulting in a basis of $41,030. Respondent subtracted
the $41,030 basis from $145,000, the amount petitioners reported
as the sales price of the property on their 1993 Federal income
tax return. This resulted in the gain of $103,970 and an
adjustment of $1,457 (reported loss) for a total adjustment of
$105,427.
A 1989 Schedule E, Supplemental Income and Loss, from
petitioners’ 1989 return, showed depreciation for that year was
$5,707. An Internal Revenue Service transcript of petitioners’
1992 Federal income tax return shows petitioners claimed $4,882
of depreciation for that year. Respondent averaged these two
figures ($5,294.50) and multiplied the result by the 5 years of
rental to approximate the depreciation allowed or allowable
($26,472.50 rounded by $2.50 equals $26,470, the amount
respondent calculated was depreciation allowed).
Petitioners purchased the house at Mullen Avenue as a
personal residence in April 1970 for $21,500. Petitioners sold
the house for $145,000 in April 1993. On the Form 4797, Sales of
Business Property, petitioners reported a basis of $146,457, and
a loss of $1,457. Petitioners did not attach a calculation of
their basis to the Form 4797.
Petitioners did not have a schedule of the depreciation
allowed or allowable to them over the rental period. They did
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