*3744 1. MARCH 1, 1913, FAIR MARKET VALUE. - Determined upon the facts and evidence of record.
2. GAIN OR LOSS. - In 1906-1907 petitioner acquired certain land and erected a fireproof office building thereon and sold the same in 1923. The March 1, 1913, value properly depreciated to date of sale is in excess of the sale price, but the sale price is in excess of cost properly depreciated to date of sale. Held, petitioner realized no taxable gain or deductible loss from the transaction.
*720 This proceeding results from respondent's determination of a deficiency in the amount of $3,726.17 in petitioner's income tax for the calendar year 1923.
Petitioner alleges error with reference to the March 1, 1913, fair market values used by respondent in his computation of taxable income derived from a sale of real estate in the taxable year.
FINDINGS OF FACT.
Petitioner is a California corporation with its principal office at Pasadena. The business of petitioner was the ownership and operation of an office building.
*3745 *721 In 1906 petitioner acquired three contiguous parcels of land in Pasadena, Calif., which, when combined, afforded a frontage of 117 feet on Colorado Street, the principal business street of the city, and 135 feet on Broadway. The land cost $146,080.90, or approximately $1,248 per front foot. Upon that site petitioner erected, in 1906 and 1907, a modern fireproof office building covering an area of 117 feet by 125 feet and containing in excess of 1,300,000 cubic feet. The construction of the building cost $287,430.36, or approximately 22 cents per cubic foot.
At the time the building was erected its location was two blocks east of the main business center, but the city's business activities grew steadily eastward on Colorado Street and petitioner's land and building steadily appreciated in value. Pasadena's population grew and its business expanded. The Southern Pacific Railway had its station on the southeast corner of Colorado Street and Broadway, and in 1909 the Pacific Electric, which furnished transportation between Los Angeles and Pasadena, made its terminus at that point. In 1912 the Pasadena National Bank leased a plot of ground on Colorado Street, one-half*3746 block from petitioner's building, and erected a bank building thereon in 1913. The ground lease was for a term of 99 years at a rental of $1,500 a front foot for the first ten years and thereafter on an ascending scale basis. The post-office building was erected on Colorado Street, two blocks east of petitioner's property.
The March 1, 1913, fair market value of petitioner's land exclusive of improvements was $175,500. Due to the expansion of business and the location of petitioner's property, the building, which has a useful life of 50 years from date of construction, appreciated in value and on March 1, 1913, its fair market value was not less than $287,000.
In 1923 the building and land was sold for $370,000.
The Commissioner determined the March 1, 1913, value of the building to be $257,729.22 on the basis of cost depreciated at 2 per cent from date of construction to that date; he determined the March 1, 1913, value of the land to be the same as cost and computed a profit upon the sale made in 1923. There is no dispute as to the rate of .022304 depreciation from March 1, 1913, to date of sale, to be applied to the March 1, 1913, value.
OPINION.
TRUSSELL: The*3747 only dispute between petitioner and respondent is with reference to the March 1, 1913, value of the property in question.
*722 At the hearing on this proceeding petitioner introduced the testimony of three witnesses each of whom has been engaged in real estate business since prior to the erection of the building in question. Each of those witnesses was thoroughly familiar with the property in question and with the March 1, 1913, market values of Pasadena property. They testified as to the growth of the city's population, the expansion of business properties eastward on Colorado Street and the steady increase in property values during the years 1907 to 1913, inclusive. There was also testimony given at the hearing to the effect that assessed valuations steadily increased during those years for the purposes of county taxes.
We are of the opinion that the evidence establishes that the March 1, 1913, fair market value of petitioner's land exclusive of improvements, was $1,500 per front foot, making a total of $175,500. One expert witness testified that the building could not be reproduced in 1913 for less than 25 cents per cubic foot. All of the expert testimoney was*3748 to the effect that the March 1, 1913, value of the building was in excess of its cost. We are of the opinion that the witnesses on behalf of petitioner are well qualified to formulate a sound opinion as to the March 1, 1913, fair market value of the property in question, and have found that such value was not less than $287,000.
The sale price is less than the March 1, 1913, value of $175,500 for the land and $287,000 for the building depreciated at a rate of .022304 per annum from that date to date of sale, but said sale price is in excess of cost properly depreciated at a rate of 2 per cent per annum from date of construction to date of sale, resulting in no gain or loss to petitioner from the said transaction.
Judgment will be entered on 20 days' notice, pursuant to Rule 50.