*3412 An amount paid in 1921 in excess of the amount of insurance received in rebuilding a structure partially destroyed by fire in 1920 is not a legal deduction from gross income in an income-tax return for 1921.
*1060 This proceeding is for the redetermination of a deficiency in income tax for 1921 in the amount of $2,861.13, arising from the disallowance by the Commissioner of $14,254.29 representing the cost above insurance of rebuilding in 1921 a structure partially destroyed by fire in 1920.
FINDINGS OF FACT.
The petitioner is a resident of Charleston, W. Va. In 1920 he was the owner of a building located on Capitol Street in Charleston, which had been built by him in 1895 at a cost of $20,625.73. The March 1, 1913, value of the building was $60,000. The building was approximately 50 per cent destroyed by fire on October 29, 1920. The loss was covered by insurance to the extent of $16,754.16. Shortly after the fire the petitioner engaged a building foreman to repair the damage done. The building was originally constructed with brick*3413 walls, steel beams, and steel girders through the center, cast iron columns, and part of the front was limestone and brick. The fire destroyed the roof and floors; but most of the walls and steel girders were not seriously damaged and the cement floor in the basement and sewerage connections were not affected. The heat had, however, chipped and damaged some of the stonework and also damaged some of the brick walls, which were not replaced. In the reconstruction of the building the tin roof was replaced by a "built-up roof," that is, a fiber asphalt roof made of Johns Manville asbestos with Baird specifications; "a roof where one sheet is put down then another one and another one and mopped with asphalt." The fire wall between the damaged building and the adjoining building was rebuilt higher than the old wall for the new elevators to be installed. A wood pent house on the property was rebuilt with one side brick. The building before the fire was equipped with West-brook electric elevators which had been installed in 1912. They were replaced with Otis electric elevators at a cost of $6,830.63. The total *1061 cost of the reconstruction, which was completed in 1921, was*3414 $31,008.45. Petitioner received from the insurance companies $16,754.16, which, deducted from the cost of repairs, left an excess cost of $14,254.29. The latter amount was claimed by the petitioner as a deduction from gross income in his income-tax return for 1921. The Commissioner disallowed this deduction in the determination of the deficiency.
The actual value of the restored building was not in excess of the value of the building before the fire occurred.
OPINION.
SMITH: Section 214(a)(4) permits an individual taxpayer to deduct from gross income:
Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business.
Any loss sustained by the petitioner in respect of the fire of October 29, 1920, within the limits of the taxing act, was deductible from gross income in the petitioner's tax return for 1920. The respondent has determined no deficiency for the year 1920 and we are not concerned with the amount of the loss deductible from the gross income of that year. The petitioner claims, however, that inasmuch as the cost of restoring the property was $14,254.29 in excess of the insurance received he is entitled*3415 to deduct that amount from gross income of 1921 as a necessary expense of repair. Section 215(a) of the Revenue Act of 1921 (under the provisions of which the return for 1921 was made) prohibits the deduction from the gross income of an individual of -
(2) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate;
(3) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.
The expenditure made by the petitioner in 1921 in restoring the property was $31,008.45. Of this amount the respondent has disallowed the deduction from gross income of $14,254.29, the difference between the cost of the restoration and the insurance recovered. In , we held that the difference between the cost of a new mill and equipment and the amount of insurance collected on the old mill and equipment was a capital expenditure and not a deductible expense. That decision is controlling here. The action of the respondent in disallowing the deduction of $14,254.29 is sustained.
Judgment will be entered*3416 for the respondent.