*478 Decision will be entered for the respondent.
MEMORANDUM OPINION
This case was heard pursuant to section 7443A(b)(3) 1 and Rule 180 et seq.
Respondent determined a deficiency in petitioners' Federal income tax for 1986 in the amount of $ 1,598.
The issues for decision are (1) whether petitioners are entitled to a deduction for automobile expenses in excess of amounts claimed on their income tax return; (2) whether petitioners, in connection with a rental real estate activity, are entitled to depreciation deductions for improvements to the rental property and appliances in excess of amounts allowed by respondent under
Some of the facts were stipulated and are so found. Petitioners resided at Austin, Texas, when they filed their petition.
Respondent's determinations in the notice of deficiency are presumed correct, and petitioners bear the burden of showing such determinations to be incorrect.
On Schedule A of their 1986 Federal income tax return, petitioners claimed deductions of one-half of $ 2,471.97, $ 602.24, and $ 423, respectively, for automobile repairs and maintenance, diesel fuel, and insurance in connection with their*480 use of an automobile in their rental property business. These amounts were allowed by respondent. At trial, petitioners argued that they should be allowed additional deductions for auto expenses based upon 80 percent business use of the automobile, rather than 50 percent business usage, stating that the 50 percent calculation on the return had been only an estimate. In support of their claim of 80 percent business use, petitioners presented no documentary evidence but testified that they had made a more accurate estimate of the business usage based upon a survey of receipts for items purchased for which the automobile was used. Petitioners further testified that they arrived at the new estimated percentage of business usage by subtracting the estimated mileage attributable to a personal trip to Arizona (approximately 3,000 miles) from the estimated total mileage of 14,006 for the auto for the year. Respondent contends that petitioners have not established that they used the automobile more than 50 percent of the time and are therefore not entitled to additional deductions.
Petitioners' claim of 80 percent business use of their automobile, like the 50 percent claimed on the return, *481 appears to be an estimate arrived at primarily by subtracting estimated mileage attributable to a trip to Arizona from the estimated total mileage. On this record, petitioners have not carried their burden of proving their entitlement to automobile expenses in excess of the amounts claimed on their return.
Petitioners purchased a house in Austin, Texas, in 1968 for $ 9,375, which they held as residential rental property (the property). The rental house had an adjusted basis of $ 797 in 1986. The property was rented during the first 3 months of 1986 and, thereafter, because extensive damage had been done to the property by the tenants, petitioners began repair and renovation of the property. This work included installing a new sheet metal roof, new kitchen cabinets, and new tile in the kitchen, garage, and patio. Petitioners also installed a new microwave oven and range in the house. On Schedule E of their 1986 tax return, petitioners claimed depreciation on the improvements, using the straight-line method, as follows:
| Depreciation | |||
| Item | Cost | Years | Claimed |
| Sheet metal roof | $ 2,209.00 | 10 | $ 110 (6 months) |
| Kitchen cabinets | 3,393.69 | 3 | $ 752 |
| Tile | 3,538.31 | 3 | $ 590 |
| Microwave & range | 857.49 | 3 | $ 216 (9 months) |
| Total | $ 9,998.49 |
*482 As to these items, respondent redetermined the depreciation or recovery amount under
In addition to the above improvements, petitioners also incurred expenditures totaling $ 5,504 for the following items (referred to hereafter as the "listed items"), which they deducted on their 1986 return as repairs:
1. Electrical hardware
2. Installation of vents to the attic
3. Purchase of garbage disposal
4. Purchase of shower door
5. Plumbing hardware
6. Panelling expense
7. Lock expense
8. Painting expense
9. Purchase of ceiling fans
10. Purchase of screens for door
Respondent determined that the listed items represented substantial improvements to the property which should be capitalized and recovered pursuant to
Petitioners argue that the listed items represented currently deductible expenses rather than capital improvements, and that the depreciation*483 taken on the improvements, which consisted of the roof, cabinets, and tile, should be allowed as claimed because the useful life of each item as determined by petitioners corresponded with the anticipated useful life of the items in petitioners' experience in owning rental properties in Austin, Texas. As an example of their reasoning with respect to the claimed useful life of the improvements, petitioners testified that, due to frequent hailstorms in the Austin area, most roofs must be replaced within 10 years of installation. In the alternative, petitioners argued that they are entitled to an expense deduction in the amount of $ 5,000 under
With respect to petitioners' claim that the listed items above, totaling $ 5,504, represent currently deductible repairs rather than capital improvements,
The cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition, may be deducted as an expense, provided the cost of acquisition or production or the gain or *484 loss basis of the taxpayer's plant, equipment or other property, as the case may be, is not increased by the amount of such expenditures. Repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the life of the property, shall either be capitalized and depreciated in accordance with
Thus, to sustain their claim to an expense deduction for the repairs to their rental property, represented by the above-listed items, petitioners must show that the work done did not "materially add to the value of the property nor appreciably prolong its life." Respondent argues that all of the above-listed items represented part of a substantial renovation of the property and are, therefore, properly classified as capital improvements. In support of this position, respondent cites the extensiveness of the work done and the amount expended ($ 5,504) in comparison with the original and adjusted basis of the property ($ 9,375 and $ 797, respectively). The record does not contain any detailed description of the work done, other than the preceding list of 10 categories*485 and petitioners' testimony that the work included replacement of doors, doorways, doorknobs, door screens, locks, plumbing pipe and fixtures, faucets, electrical switchplates, aluminum angle counter edges, and carpet cleaning. The amount spent for each item or category of items was not specified.
Petitioners bear the burden of showing that the costs incurred were for repairs and how much was spent for each repair. While it appears that some of the work done, such as carpet cleaning, ordinarily would not represent capital improvements, on this record, the Court is unable to determine the amount spent by petitioners for such items. Further, it appears that many of the "repairs," such as installation of vents to an attic and panelling, are clearly capital improvements.
The parties disagree on the deductions allowable under
Respondent contends that the remaining improvements consisting of the sheet metal roof, kitchen cabinets, and tile and the listed items making up the $ 5,504 constitute "substantial improvements" to the property, recoverable as 19-year property under
the improvements added to capital account with respect to any building during any 24-month period, but only if the sum of the amounts added to such account during such period equals or exceeds 25 percent of the adjusted basis of the building (determined without regard to the adjustments provided in paragraphs (2) and (3) of
Petitioners argued, in the alternative, that they are entitled to a deduction up to $ 5,000 for the cost of the appliances and/or the $ 5,504 listed items under
(1) In general. -- An election under this section for any taxable year shall --
(A) specify the items of
(B) be made on the taxpayer's return of the tax imposed by this chapter for the taxable year.
Such election shall be made in such manner as the Secretary may by regulations prescribe.
Petitioners made no
Respondent's determinations with respect to capitalization of the costs of improvements to the real property, including the cost of items deducted as repairs by petitioners on their tax return, are sustained. Respondent is also sustained as to the deduction allowed under
Decision will be entered for the respondent.
Footnotes
1. All section references are to the Internal Revenue Code as amended and in effect for the year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2.
Section 167(a) provides: "In the case of recovery property (within the meaning ofsection 168 ), the deduction allowable undersection 168↩ shall be deemed to constitute the reasonable allowance provided by this section."