*3129 1. Claimed fire loss disallowed for lack of evidence of cost of property.
2. Amount expended, in excess of insurance received, in restoring a building partially destroyed by fire, held not deductible as the cost of repairs.
*960 The respondent, disallowing an alleged fire loss, determined a deficiency in income tax for the year 1920 in the amount of $23,508.38. *961 Petitioner alleges that therein the respondent erred and further claims that the difference between the insurance recovered and the cost of restoring the building to a useful condition is deductible as the cost of repairs.
FINDINGS OF FACT.
Petitioner, an individual, during the years 1894 and 1895 erected a six-story brick building at 834-840 Chapel Street, New Haven, Conn., which he owned thereafter until subsequent to the year 1920.
The building was constructed with lateral and vertical iron beams, brick walls, wooden joists, and had a cast iron front. A new gravel roof was put on the building in 1918. As originally constructed, a copper covered tower containing*3130 a storage room surmounted the building.
The first floor, during the period 1913 to February 14, 1920, was occupied by a store of the F. W. Woolworth Co. at a rental of $875 per month in 1913, and $1,500 per month in 1920. The floors above the first were arranged for offices, all of which were occupied by tenants practically all of the time. The gross rentals in 1913 were about $18,000 and in 1920 at the rate of $28,500 per year. The building was kept in very good condition by reason of repairs and painting whenever needed. It had a value, exclusive of the ground, in 1913 of $125,000 and in 1920 a value of $225,000.
The building was insured against fire in the sum of $30,000. As the result of a small fire in 1919 the insurance companies paid petitioner the sum of $270. That item is not involved in this proceeding.
On February 14, 1920, a fire occurred in the building which destroyed the tower, the roof, the sixth and part of the fifth floor. The lower floors and walls were damaged by water and smoke. The floor boards warped and buckled; the plumbing was destroyed; the electric wiring was burned out; the elevator shaft and cables were destroyed; the cast iron front was*3131 cracked in may places.
As a result of the fire the insurance companies, on or about March 19, 1920, paid the petitioner the sum of $29,730. The damage to the building by the fire greatly exceeded the insurance carried.
Shortly after the fire petitioner proceeded to restore the building to a tenantable condition. He directed the contractors to expedite the work as some of the tenants desired to get into the building, and he also directed that the work be done as cheaply as possible. In reconditioning the building the tower was not replaced. To replace it would have cost $8,000. Some of the warped floor boards were replaced, but for the most part they were jacked down and screwed or nailed in place. All the floors were covered with linoleum to hide the defects at a cost of $5,727.11. To have replaced all the flooring would have cost $7,000. The plumbing work was done by the janitor of the building. It was not a first-class job and the plumbing as *962 so replaced was not as good as before the fire. The inside walls were patched and redecorated throughout. The cracks in the metal front were puttied and the front painted.
Where replacements were made the same*3132 kinds and grades of materials were used as in the original construction. The life of the building was not extended by reason of the repairs and replacements, and it was not in as good condition after the reconditioning was completed as it was before the fire.
During the year 1920 the petitioner expended $70,872.14 in reconditioning the building, as follows:
| C. W. Murdock - reconstruction | $37,445.64 |
| C. W. Murdock - reconstruction | 912.22 |
| C. W. Murdock - reconstruction | 120.61 |
| C. W. Murdock - reconstruction | 1,059.28 |
| Riley & Adams - electrical wiring | 5,601.49 |
| Merrels & Whitfield - painting | 8,074.56 |
| Otis Elevator Co. - elevator work | 3,408.35 |
| Plumbing, etc., labor and material | 6,968.03 |
| Glass | 675.31 |
| Freight | 351.54 |
| J. E. Kelley Co. - roofing | 380.00 |
| Malley Company - linoleum | 5,727.11 |
| Miscellaneous small items | 148.00 |
| Total | 70,872.14 |
Within the time prescribed by law, petitioner filed his income-tax return for 1920 and claimed therein a deduction of $42,893.13 on account of the fire. The return was filed on a cash receipt and disbursement basis and showed a net income of $129,791.80 upon which a tax of $36,401.73 was computed and duly paid to the*3133 collector of internal revenue.
A revenue agent made an examination of the books and records of the petitioner for the year 1920 and on or about May 27, 1924, submitted a report in which he allowed as a loss deduction the sum of $18,000 and recommended the assessment of additional income tax for the year 1920 in the sum of $13,267.83.
On or about August 5, 1924, the revenue agent submitted a supplemental report in which he allowed as a loss deduction the sum of $16,219.82 and recommended the assessment of additional income tax for the year 1920 in the total sum of $14,264.73.
By Treasury Department letter (IT:PA:5-AUS-506) dated November 17, 1924, the petitioner was advised that an audit of his return for the year 1920 disclosed a deficiency of $14,264.73 and he was granted 30 days within which to present a protest.
Thereafter the petitioner duly protested the findings set out in the Treasury Department letter dated November 17, 1924.
Thereafter a hearing was held and as a result thereof the petitioner was advised by Treasury Department letter dated January 20, 1926, *963 that there was a deficiency in tax for the year 1920 in the sum of $23,508.38, on the ground*3134 that neither a gain nor a loss was sustained by the petitioner as a result of the fire and damage to petitioner's building in 1920. The petitioner thereupon duly filed its appeal with the Board of Tax Appeals.
OPINION.
ARUNDELL: The amount of $41,142.14 which petitioner claims as a deduction from gross income is the difference between the amount of $70,872.14 expended in reconditioning his building and the insurance received in the amount of $29,730. It appears that the amount claimed was taken as a loss deduction in petitioner's return and that the deduction was disallowed by the respondent because of failure to establish March 1, 1913, value, and on the further ground of failure to establish that that value, depreciated to the date of the fire, was in excess of the insurance received.
In the petition filed, as amended, error is alleged in three counts: (1) in disallowing a deduction of the sum of $41,142.14; (2) in disallowing that amount as a necessary expense; and (3) in disallowing the amount involved as representing a loss sustained.
The purpose of the loss provisions of the Revenue Act of 1918 is to allow a deduction for the actual loss sustained, and the amount*3135 of the loss in the case of property acquired prior to March 1, 1913, and destroyed as a result of casualty "is in no event greater than the capital investment in the property." . Cost is therefore a necessary element in determining the amount of the loss and as this element is lacking in the present case, the respondent's disallowance of a loss in any amount must be sustained.
Petitioner says that regardless of cost he has sustained a loss in the amount of the excess of the cost of restoration over the insurance received. This in effect is saying that the cost of restoration is the measure of the amount of the loss. That this is not a proper measure has been specifically held in , which arose under the Revenue Act of 1921, but is equally applicable to cases under the 1918 Act. See also .
The next question, as framed by the pleadings, is whether the amount expended in excess of the insurance in the restoration of the building is deductible as the cost of repairs. We had before us a parallel situation in the case of *3136 , in which we held that the amount so claimed was a capital expenditure and not a deductible expense. Similarly, in , where a barge sank in a storm and was raised and reconditioned, we held that the cost of reconditioning which was necessary to put the barge in the condition it was in at the time it sank, was an item to be capitalized rather than deducted as the cost of repairs.
*964 Counsel for petitioner cites many cases in which the word "repair" is defined and distinguished from such terms as replacements, betterments, improvements, and so on. The difficulties that lie in the way of adopting any general rule and attempting to fit all cases to it are obvious. An item, in relation to income, may in one case be so insignificant that it would be absurd to require its capitalization even though under a technical definition it might be an improvement, while in another case the cost of a similar item might be sufficient to absorb all the income for the year. We can not believe that Congress intended to allow as charges against the revenues of a day or year the cost of restoring major*3137 parts of income-producing property where the restoration is of such character as to be useful over a long period of years.
The distinction between maintaining property through repairs necessitated as the result of a casualty, such as in , and the restoration of a major part of the property itself, is readily apparent. The Baer and Zimmerman cases, supra, are controlling here and petitioner is not entitled to the deduction claimed for repairs.
In the brief filed by counsel for petitioner it is argued that the entire amount spent for restoration of the building is deductible, and not merely the excess of the cost over the insurance. There is no issue as to this claim raised by the pleadings and we can not pass upon it. However, if this matter were in issue, what we have said above would dispose of it.
Judgment will be entered for the respondent.