
    Wm. Ward, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 10471.
    Promulgated August 22, 1927.
    The unextinguished cost of a building removed in order to obtain a ten-year lease upon the land, represented the cost to the lessor of such lease and should be exhausted over the term of the lease.
    
      Frank G. Myers, Fsq., for the petitioner.
    
      J. A. O’GaZlahan, Esq., for the respondent.
    This proceeding results from the determination by the respondent of a deficiency in income tax for the calendar year 1920, in the amount of $918.50. Two errors are assigned: (1) The respondent refused to allow as a deduction a loss of $2,000 sustained in the year 1920, due to the demolition and tearing down of a building; (2) respondent refused to allow a deduction for exhaustion, wear and tear of a building used in trade or business, at the rate of 15 per cent per annum.
    FINDINGS OP PACT.
    Petitioner is a resident of Brooklyn, N. Y., and is engaged in the banking and real estate business at Coney Island. In 1918, he acquired, by inheritance, a lot and building located on the south side of the Bowery, Coney Island, about 50 feet east of Thompson’s Walk. The lot was 35 by 149% feet. The building was 35 by 45 feet, and consisted of two stories. The first floor was used for store purposes and the second floor contained an apartment. The depreciated value of the building in 1920 was $2,000. In 1920, the building and lot were leased to a corporation known as “ The Virginia Reel Co.” for a period of ten years, at a minimum rental of $7,000 per year. Prior to the execution of this lease, the rent received from the premises was $2,750 per year. “ The Virginia Reel Co.” used premises adjoining the lot owned by petitioner and they found it desirable to secure the use of petitioner’s lot, in order that their business might be expanded. The contract of lease did not provide for a renewal of same at expiration. The lessee was given permission to remove or demolish the building if desired, and if a building remained on the lot at the expiration of the lease, the lessee was given permission to remove or demolish the same.
    In 1913, petitioner acquired, at the cost of $20,000, a building located on the Bowery and Jones’ Walk, Coney Island, N. Y., and known as “ Rough Riders.” The building was 64 feet front by 60 feet depth and was three stories in height. It was built of heavy timbers and reinforced with steel. The remaining useful life of the building, on March 1, 1913, was 20 years.
   OPINION.

Millieen :

In the case of Chas. N. Manning v. Commissioner, 7 B. T. A. 286, we had occasion to consider the identical question presented by the first issue in this proceeding. On the authority of that decision, the unextinguished cost, $2,000, of the building removed in order to obtain a ten-year lease upon the land, represented the cost to petitioner of such lease and should be exhausted over the ten-year term of the lease.

Concerning the second issue, counsel for petitioner, in brief filed, requests a depreciation allowance of 5 per cent per annum on the building known as the “ Rough Riders.” The building should be depreciated on the basis of its cost in 1913, i. e., $20,000. It had a remaining useful life on March 1, 1913, of 20 years and petitioner is therefore entitled to a deduction for depreciation of 5 per cent per annum.

Judgment will be entered on 15 days’ notice, under Rule 50.

Considered by MaRquette, Phillips, and Van Fossan.  