*1812 Real estate acquired in 1915 by petitioner and her husband as tenants by the entirety was sold by the surviving widow in 1925. Held that the basis for determining gain on the sale is the cost of the property at the time of acquisition.
*854 Proceeding for the redetermination of a deficiency of $1,232.84 in income tax for 1925. The issues are whether the basis for computing the profit realized or loss sustained on the sale by petitioner in 1925 *855 of real estate acquired in 1915, and held with her husband as tenants by the entireties, should be (a) cost, or (b) market value at the time of her husband's death, and the proper amount allowable as a deduction for interest. By an amended answer respondent asks that the proposed deficiency be increased by reason of an excessive allowance for improvements made on the property sold, and local property taxes. The facts were stipulated.
FINDINGS OF FACT.
In 1915 Walter B. Lang and his wife, the petitioner, purchased a piece of residential property in Catonsville, Md., at a cost of $13,000, *1813 of which amount the husband contributed $11,440 and the petitioner, $1,560. Title was taken by the purchasers as tenants by the entireties. Thereafter certain permanent improvements were made on the property at a cost of $1,500, all of which was paid by the husband.
Petitioner's husband died in 1924. The real estate then had a market value of $40,000. The petitioner was executrix and the sole beneficiary of his estate.
The real estate was included in the estate-tax return filed by the petitioner, as executrix, at $35,200, this being 88 per cent of the value at the time of death, which percentage represents the portion of cost paid by the decedent. A Federal estate tax was paid based on the net estate as returned by the executrix.
The real estate was sold by petitioner on or about July 1, 1925, for $40,000. The selling expenses amounted to $2,055.80, which amount has been allowed by the respondent in determining the profit realized on the sale.
In 1925 petitioner paid and deducted in her return for that year, interest charges amounting to $6,298.49, of which the sum of $2,846.52 had accrued prior to her husband's death and was included in the liabilities of his estate. *1814 In that year she also paid, and claimed as a deduction in her return, the sum of $1,431.93 for local property taxes. Of this amount, $761.96 had accrued prior to her husband's death, and was included among the liabilities of his estate.
In his determination of the deficiency respondent (a) used cost in 1915 as a basis for computing the amount of profit realized on the sale of the real estate and in his computation allowed $2,500 for improvements to the real estate; (b) disallowed $3,583.71 of the interest deduction on the ground that such amount had accrued prior to the death of petitioner's husband, and (c) allowed the sum of $1,431.93 as a deduction for local property taxes.
*856 OPINION.
ARUNDELL: Petitioner claims that, by reason of the property being held by the entireties, the basis for determining the taxable gain on the sale is the sum of the cost contributed by her ($1,560) and the value of her husband's interest in it at the time of his death ($35,200) a total of $36,760. Respondent has used as a basis the cost in 1915 in the amount of $13,000.
The question here raised has been decided by the Board adversely to petitioner's contention in *1815 , but that was before , and at a time when the Board's position was that estates by the entirety might not be included in the gross estate for the imposition of an estate tax. Petitioner relies on the Tyler case, but, as we view that decision, it is not decisive of the question here presented. It is true that in that case the Supreme Court was not disposed to allow the fiction of the unity of husband and wife to stand in the way of the inclusion in the gross estate of an estate by the entirety to the extent and in the manner provided for in the statute. It was said in that case that, "The power of taxation is a fundamental and imperious necessity of all government, not to be restricted by mere legal fictions." The conclusion of the court was not that upon death the survivor takes by an outright transfer, as that word is commonly understood, but that death is the generating source of an enlargement of property rights which Congress might and did include within that class of happenings upon which an estate tax is imposed.
*1816 A part of petitioner's argument is that the survivor takes by inheritance. But this is not the law as we understand it. The rights of both husband and wife originate in the deed of conveyance. Under it each takes "not by moieties, but the entirety." ; . The interest of the wife in the whole property under the deed during the lifetime of the husband is so much hers that it can not be subjected to the debts of the husband. ; . The only effect of the death of one of the tenants is to remove the restrictions with which the ownership of the other was hedged about; it does not change the source of ownership, namely, the deed of conveyance. The Supreme Court in the Tyler case recognized the State law to be as we have just stated it, and said, moreover, that those decisions were binding on it.
It is also argued that imposition of a tax on the sale of the property will result in double taxation because of the fact that the same property was included in the decedent's estate, and an estate tax *857 paid. Discussing a similar argument*1817 in , we said:
But there is no warrant for the assumption of mutual exclusion. The two taxes are different in kind and incidence, and if when properly applied they each produce revenue in respect of the same matter, that fact alone does not militate against either levy. Double tax is of course not to be presumed (see Nichols v.United States, Court of Claims, April 4, 1927; 6 Am. Fed. Tax Rep. 6592) and ought to be avoided if doubtful, but if clear it is not invalid. This may be illustrated by the plain overlapping of the capital stock tax and the income tax. The former is measured by the actual value of capital stock. Such value frequently reflects earnings which at the same time measure the income tax. But the earnings when derived are not less subject to income tax because they have given taxable value to capital stock. A similar impinging of the inheritance tax and the income tax upon the same factor of value will be found in the two decisions of the Supreme Court in *1818 , and ; 5 Am.Fed. Tax Rep. 5380.
Moreover, in the present case the two taxes fall of different persons; the estate tax on decedent's estate, and the income tax on the petitioner. If the argument of petitioner were sound, it would be equally sound to say that that portion of a man's income which he saves and which eventually becomes a part of his estate should not be subject to an estate tax because he has once paid an income tax on it.
The primary basis for computing gain or loss is cost. In this case the cost of the property in which the petitioner "became seized of the entire estate" () was $13,000, and she sold it in the taxable year for $40,000. We think it does not matter that a part of the cost was supplied by the other spouse. If it be considered that the part contributed by the deceased spouse was a gift, then the basis as to such part is the fair market value at the time of the gift. Section 204(a)(4) of the Revenue Act of 1924. As the property here was acquired for cash, *1819 the presumption is that the cash paid is the measure of such value.
Accordingly, we hold that the gain realized by petitioner on the sale of the property in 1925 was the difference between cost of $13,000 and selling price of $40,000, subject to adjustment for improvements as stipulated, which will be settled under Rule 50. The taxes and interest accrued at the time of decedent's death, and which were included as liabilities of his estate, are not proper deductions from petitioner's income, and this will be adjusted in the Rule 50 settlement.
Reviewed by the Board.
Decision will be entered under Rule 50.