*2863 Where improved residential properties were purchased by partners as a joint investment, and pursuant to a decision reached in subsequent years the improvements were razed to make way for a building needed by the partnership business, that portion of the total cost of such properties which was allocable to the old improvements, less depreciation, is deductible in the year the demolition occurred.
*422 These are proceedings duly consolidated for hearing and decision, for the redetermination of deficiencies in income taxes for the year 1922 as follows:
| C. C. Watson, Docket No. 20810 | $634.20 |
| W. C. Cheeseman, Docket No. 20811 | 746.79 |
The only errors alleged are the disallowance of deductions of $5,990.63 for each of the petitioners claimed as a loss sustained on the demolition of certain buildings.
Petitioners are individuals residing at Butler, Pa. Beginning at some date prior to 1919, and extending to the present time, they were engaged as partners in the automobile business under the firm name of Butler Buick Co. The business*2864 was conducted in a rented building. By 1919 they had built up a surplus which they did not *423 need in the business, aside from plans to build a new building for their business. The plans were in an uncertain state throughout 1919 due to the general depression in the automobile business during that year.
In September of 1919 they purchased for $25,000, each, a lot improved with a two-story and attic frame residence and outbuildings, known as the Miller property, situated on North Main Street in one of the better residential sections. It was at least a block from the business section, but it was a potential site for commercial use as the business section tended slowly to work that way. In October, 1919, an adjacent residential property, known as the Sarver property, was purchased for $13,500, only a part of which was paid down. The improvements thereon consisted of a two-story-and-attic house, and a four or five-car garage at the rear.
The two properties were purchased jointly by petitioners as an investment out of the surplus (to the extent of cash payments) created from the partnership business, but were not considered partnership property, though the accounts therefor*2865 were kept in the partnership books in an investment account. The income therefrom and deductions therefor were returned and claimed as those of the partnership.
The two houses, though approximately 60 years old, were in good repair, especially the Sarver residence, which was considered a desirable residence property. Both had modern improvements. The Miller property was rented to two families at a total monthly rental of $60, while petitioner Cheeseman occupied the Sarver residence for about two years after its purchase on a rental basis of $75 monthly. The buildings on the two properties were worth at least $12,000 in 1919 and 1922, and that amount of the total purchase price of the two properties when purchased in 1919, was attributable to the buildings.
Both before and after these properties were purchased petitioners were negotiating for the purchase of the business property in which their automobile business was then being conducted. The negotiations were not successful and the lease was renewed. Subsequently the rent was raised and in January of 1922 petitioner decided to raze the buildings on the two properties to make way for a building adapted to the needs of their*2866 automobile business. Pursuant to such decision the buildings were razed during the taxable year 1922 and the new building has since been erected. Petitioner had allocated a portion of the total cost of the properties to the improvements and claimed depreciation on such improvement cost for the years 1919, 1920, and 1921. Such cost, less depreciation, amounted to $11,981.26 in 1922 and that amount, representing the undepreciated cost, was claimed by the petitioners as deductions in the latter year on account *424 of the buildings being razed, each petitioner claiming one-half thereof, or $5,990.63, on his return. The cost of demolition approximated the salvage value thereof. Respondent disallowed such deductions.
OPINION.
SIEFKIN: All of the evidence is to the effect that the properties under discussion were purchased jointly by petitioners as an investment and that the decision to raze the buildings was not reached until early in 1922. We must, accordingly, reject the respondent's contention that the case is governed by the decision in *2867 , which turned upon the fact that the taxpayer, when he purchased the property, expected to raze the improvements and devote the land to other uses.
We have held in a number of cases that a deductible loss, measured by unextinguished cost, resulted where existing improvements were razed to make way for other buildings. ; ; .
The cost of improvements razed, or $12,000, less depreciation thereon at the rates claimed and allowed during the years intervening between the date of purchase and the year and demolition occurred, should be divided equally between petitioners as allowable deductions.
Judgment will be entered under Rule 50.