- 4 -
In 1999, petitioners also owned rental real estate at 1112 -
1114 W. 66th Street (W. 66th Street property) and 10.85 acres of
rental real estate in San Luis Obispo, California (San Luis
Obispo property). In 1999, petitioners received rent of $8,100
from their W. 66th Street property tenants, and $0 from the San
Luis Obispo property.
C. Petitioners’ Tax Return and Respondent’s Notice of
Deficiency
Petitioners timely filed their Federal income tax return for
1999. In it, they claimed depreciation deductions for 1999 of
$8,000 for the Crenshaw Blvd. property and $3,600 for the W. 66th
Street property. Petitioners also deducted the amount of a late
rent penalty ($2,219) to which petitioners contend they were
entitled but did not receive.
In the notice of deficiency, respondent determined that
petitioners incorrectly calculated depreciation of the Crenshaw
Blvd. property for 1999. Respondent determined that petitioners’
depreciable basis was $182,290.85 by subtracting $40,015.06 (to
account for basis allocated to land) from the $222,305.91
purchase price. Respondent then applied the straight-line method
of depreciation over 27.5 years which resulted in $6,628.75
allowable depreciation for the year. Respondent reduced that
amount to $3,867 to account for the fact that petitioners owned
the Crenshaw Blvd. property for 7 months in 1999. Respondent
disallowed petitioners’ $2,219 bad debt deduction.
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Last modified: May 25, 2011