Hendrick v. Comm'r of Internal Revenue
| Decision Date | 31 March 1961 |
| Docket Number | Docket No. 81690. |
| Citation | 35 T.C. 1223 |
| Parties | HOBART J. HENDRICK AND MARY B. HENDRICK, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. Commissioner's determination of basis for depreciation of portion of personal residence converted to rental property sustained where petitioner failed to establish fair market value of building at date of partial conversion or that amount spent in conversion was not for work on the portion retained as a personal residence as well as portion converted to rental property.
2. Attorneys fees paid to obtain admission to probate of copy of will, the original of which could not be located, are not deductible as expenses for the production of income or the management, conservation, or maintenance of property held for the production of income under sec. 212, I.R.C. 1954, but attorneys fees paid to keep owner of property, income from which was to be paid to another for life, advised as to the management of that property are deductible under sec. 212, I.R.C. 1954.
3. Amount paid as appraisal fee to facilitate securing a loan is a personal expense and not deductible under sec. 212, I.R.C. 1954.
4. Amount of $3,000 (out of a total payment of $6,270) determined to have been paid to school for services to an emotionally disturbed child of qualified psychologist and psychiatrist held to be deductible medical expense although principal reason for child's attendance at the school to which payment was made was not for alleviation of his emotional problems. Grant N. Nickerson, Sq., for the petitioners.
Douglas D. Robertson, Esq., for the respondent.
respondent determined deficiencies in the income tax of petitioners for the years 1954, 1955, 1956, and 1957 in the amounts of $1,433.71, $941.67, $394.29, and $3,557.05, respectively.
The issues for decision are:
(1) The amounts of deductions for depreciation to which petitioners are entitled for the years 1954, 1955, 1956, and 1957 with respect to certain rental property owned by them;
(2) Whether petitioners are entitled to a deduction for legal fees paid by them in the taxable year 1954;
(3) Whether petitioners are entitled to a deduction for an appraisal fee paid by them in the taxable year 1956; and
(4) Whether petitioners are entitled to deduct as medical expenses the amounts paid by them as the cost of their son's attending the Hampshire Country School.
Each of the parties has conceded certain issues raised by the pleadings.
Some of the facts have been stipulated and are found accordingly.
Petitioners are husband and wife who resided during all of the years here involved at 136 Blake Road, Hamden, Connecticut. They filed joint income tax returns for the taxable years 1954, 1955, 1956, and 1957 with the district director of internal revenue at Hartford, Connecticut.
Issue 1.
Petitioners purchased the improved real estate located at 136 Blake Road, Hamden, Connecticut, in November 1944 for $18,123. During the year 1951 petitioners converted the property into a two-family house. This conversion consisted of making one wing of the house into an apartment completely separate from the other part of the house. The apartment had its own front door and back door, and a stairway to the second floor and down to the basement. The total amount expended by petitioners in 1951 in the conversion of the property into a two-family house was $8,402.81. All of this amount was classified by petitioners as renovation expenses except for $158 paid as an architect's fee and $9.82 and $60.89 designated as expended for hardware and fixtures, respectively. On June 25, 1952, petitioners spent $47.50 for outlets for the apartment, and on August 20, 1953, petitioners purchased a refrigerator and stove at a total cost of $300 which they listed under the cost of apartment conversion. In addition to the amount expended by petitioners in converting the house into a two-family house, petitioners, subsequent to the purchase of the property, expended the following amounts on the dates and for the purposes indicated:
+------------------------------------------------------+
¦Date ¦Purpose ¦Amount ¦
+--------------+------------------------------+--------¦
¦Aug. 20, 1945 ¦Walls and sidewalks ¦$572.26 ¦
+--------------+------------------------------+--------¦
¦Sept. 11, 1945¦New water heater (second hand)¦435.00 ¦
+--------------+------------------------------+--------¦
¦July 5, 1946 ¦Painting ¦796.30 ¦
+--------------+------------------------------+--------¦
¦Dec. 20, 1950 ¦New sink ¦349.95 ¦
+--------------+------------------------------+--------¦
¦Nov. 24, 1951 ¦Incinerator ¦15.30 ¦
+--------------+------------------------------+--------¦
¦May 6, 1952 ¦New oil burner ¦715.40 ¦
+--------------+------------------------------+--------¦
¦June 2, 1952 ¦New parking area ¦313.50 ¦
+--------------+------------------------------+--------¦
¦Dec. 10, 1953 ¦Entrance light ¦41.87 ¦
+--------------+------------------------------+--------¦
¦ ¦ ¦3,239.58¦
+------------------------------------------------------+
The house at 136 Blake Road originally consisted of 12 rooms. Four of the original rooms were located in the wing which was converted in 1951 into the separate apartment and the eight remaining rooms were in the main portion of the house. However, prior to the conversion of the wing into an apartment, two of the original rooms had been made into one very large room to be used as a rumpus room. When the wing was converted to an apartment this room was left as one large room so that the apartment consisted of three rooms.
Petitioners on their income tax returns claimed a depreciation rate of 3 percent, a total depreciation in each of the years of $593.56, and a basis for depreciation of $15,871.17, computed as follows:
On brief they claimed a basis of depreciation of $15,263.50, computed as follows:
Respondent in his notice of deficiency allowed a basis for depreciation of $6,698.39 computed as follows:
+------------------------------------------------------------+
¦Building basis ¦ ¦$15,600.00¦
+---------------------------------------+---------+----------¦
¦Improvements claimed ¦$3,239.58¦ ¦
+---------------------------------------+---------+----------¦
¦Less painting (repairs) ¦796.30 ¦2,443.28 ¦
+---------------------------------------+---------+----------¦
¦Additional improvements ¦ ¦8,750.31 ¦
+---------------------------------------+---------+----------¦
¦Cost basis ¦ ¦26,793.59 ¦
+---------------------------------------+---------+----------¦
¦1/4 rental=$6,698.39; 12 rooms—3 rented¦ ¦ ¦
+---------------------------------------+---------+----------¦
¦Depreciation $6,698.39 X 3%=$200.95 ¦ ¦ ¦
+------------------------------------------------------------+
Respondent allowed the amount of $200.95 as depreciation in each of the years 1954, 1955, 1956, and 1957.
As of November 20, 1944, the property at 136 Blake Street was assessed by the town of Hamden, Connecticut, for real estate taxes at a total value of $23,660 of which.$2,460 was allocated to land and $21,200 to buildings.
Shortly after the conversion of the property, it was rented to a couple who soon after renting the property became separated. The wife continued to occupy the property until late in the year 1953 but petitioners did not collect the rent. Thereafter and throughout the years here involved, the property was continuously rented to persons who paid the rental charge therefor to petitioners.
Amelia J. Ives was the stepgrandmother of Hobart J. Hendrick, hereinafter referred to as petitioner. Amelia J. Ives died on July 6, 1952, in Quincy, Illinois, leaving as her only heir at law a sister, Kate Jansen. Kate Jansen was appointed administratrix of the estate of Amelia J. Ives.
In early December 1952, petitioner received a letter from a bank at Quincy, Illinois, requesting him to come to Quincy, Illinois. Petitioner and his brother immediately went out to Quincy, Illinois, and someone in the trust department of the bank took them to see an attorney who showed them a copy of a will which purported to be a copy of a will made by Amelia J. Ives. The copy of the will which was shown to petitioner provided that one twenty-fifth of the estate be distributed to her sister, Kate Jansen, and the remainder of the estate be distributed one-third to petitioner and one-third each to petitioner's brother and cousin.
The lawyer who drew up the will of Amelia J. Ives told petitioner that at the time he drew up the will ...
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