- 5 -
Petitioners depreciated the carriage house as a separate
dwelling unit at 100 percent of its cost basis (determined based
on its square footage as a percentage of the square footage of
the main house and carriage house combined) plus its renovation
costs. Based on a total of seven people using the grounds, five
of whom were renters, petitioners depreciated 71 percent of the
$95,000 petitioners spent on grounds’ improvements ($80,000 on
pool/garden areas and $15,000 on driveway/parking areas).
Respondent determined that petitioners incorrectly
calculated depreciation on their 1996 and 1997 Federal income tax
returns. With respect to the main house, respondent allowed
depreciation for the third floor units only. Respondent
determined depreciation by allocating one third of petitioners’
$125,000 purchase price for the land and improvements to the
third floor units. Respondent also allowed petitioners to
increase their basis by $40,000 for renovations to the third
floor units and to depreciate the furniture and fixtures in the
units purchased at a cost of $25,000. With respect to
depreciation for the carriage house, respondent determined the
percentage of petitioner’s cost basis attributable to the
carriage house based on its total square footage as a percentage
of the square footage of the main house. Respondent then
calculated allowable depreciation by attributing that percentage
of petitioner’s $125,000 purchase price to the business use of
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011