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Federal income tax returns. Depreciation expenses of $4,110 for
the carriage house and $26,164 for the third floor units in each
year contributed to net rental losses of $26,387 in 1996 and
$16,908 in 1997 which petitioners used to offset income from
wages and self employment.
Petitioners allocate their purchase price for the property
between the land and improvements as follows: (1) $25,000 to
land; (2) $21,000 to the carriage house; and (3) $79,000 to the
main house. Petitioners allocate the following estimated
expenses for renovations made to the property over a 15-year
period:
First floor areas, excluding kitchen $30,000
Second floor areas 30,000
Third floor areas 40,000
Kitchen and other utility areas 40,000
Roofing and exterior 75,000
Driveway and parking areas 15,000
Pool and garden areas 80,000
Landscaping 40,000
Third floor furniture and fixtures 25,000
Common area furniture and fixtures 125,000
Carriage house 70,000
Total 570,000
Petitioners calculated depreciation allowances with respect
to the third floor units by allocating a portion of their
purchase price to the third floor and increasing their
depreciable cost basis by the amount they incurred in renovating
the third floor. Petitioners also claimed depreciation for a
percentage of the cost basis and renovation costs for the common
areas of the main house.
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