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B. Depreciation
On Schedules F, petitioners claimed depreciation deductions
for the truck, the farm buildings on the DeMoore, Sioux Valley,
and Ross farms, and the installed tile on the Ross farm using the
straight-line method for the years at issue. Respondent
disallowed $19,500 of the $21,500 depreciation claimed for 2001,
$35,667 of the $37,000 claimed for 2002, and all of the $8,000
claimed for 2003. Respondent allowed all of the $2,000
depreciation of the tile installed on the Ross farm deducted for
2001 and $1,333 of the $2,000 deducted for 2002. Respondent
disallowed all depreciation claimed for the farm buildings
because petitioners had not established their bases in the
property or shown that the assets met the requirements of section
167. Respondent also disallowed depreciation and expensed
deductions petitioners claimed for the truck.
1. Depreciation of Farm Buildings and Tile
Section 167(a) allows as a depreciation deduction a
reasonable allowance for the exhaustion, wear, and tear of
property used in a trade or business. The purpose of the
deduction for depreciation is to allow the taxpayer to recover
over the useful life of the property its cost or other basis.
United States v. Ludey, 274 U.S. 295, 300-301 (1927).
Pursuant to section 168(a), the depreciation deduction for
any tangible property generally is to be determined by using the
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