James M. and Ruth J. Riley - Page 16

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          issue because petitioner did not use those structures in his                
          farming or rental activities.  Although petitioner used the house           
          as an office and for his lodging when he was at the farm,                   
          petitioners are not entitled to deductions for depreciation of              
          the house for the years at issue.  They are not entitled to                 
          deductions for depreciation in 2002 because the 15-year                     
          depreciation period expired in March 2001.  Petitioners did not             
          claim depreciation deductions for 1998 and 1999.  They thought              
          that they could extend the depreciation periods for the assets              
          for 2 years.  The failure to claim the depreciation deductions in           
          1989 and 1999 does not extend the depreciation period into 2002             
          and later years.  See sec. 1.167(a)-10(a), Income Tax Regs.                 
          Petitioners are not entitled to a deduction for depreciation of             
          the house for 2001 both because they have not established their             
          original cost basis in the house (i.e., they have not established           
          the portion of the purchase price of the farm that is properly              
          allocated to the house) and because they have not shown that the            
          total depreciation allowed or allowable in earlier years had not            
          reduced their basis in the house to zero.7                                  
               Petitioner purchased the 160-acre Sioux Valley farm from the           
          Federal Farm Credit Association in 1990.  He paid approximately             
          $1,375 per acre or approximately $220,000 for the Sioux Valley              

               7Had petitioners established that their cost basis in the              
          house was $75,000, they would have been entitled to depreciation            
          of only $833.33 ($5,000 x 2/12) for 2 months in 2001, not the               
          $5,000 claimed on the 2001 return.                                          

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