(a) The cost or other basis shall be properly adjusted for any expenditure, receipt, loss, or other item, properly chargeable to capital account, including the cost of improvements and betterments made to the property. No adjustment shall be made in respect of any item which, under any applicable provision of law or regulation, is treated as an item not properly chargeable to capital account but is allowable as a deduction in computing net or taxable income for the taxable year. For example, in the case of oil and gas wells no adjustment may be made in respect of any intangible drilling and development expense allowable as a deduction in computing net or taxable income. See the regulations under section 263(c).
(b) The application of the foregoing provisions may be illustrated by the following example:
Example:A, who makes his returns on the calendar year basis, purchased property in 1941 for $10,000. He subsequently expended $6,000 for improvements. Disregarding, for the purpose of this example, the adjustments required for depreciation, the adjusted basis of the property is $16,000. If A sells the property in 1954 for $20,000, the amount of his gain will be $4,000.(c) Adjustments to basis shall be made for carrying charges such as taxes and interest, with respect to property (whether real or personal, improved or unimproved, and whether productive or unproductive), which the taxpayer elects to treat as chargeable to capital account under section 266, rather than as an allowable deduction. The term taxes for this purpose includes duties and excise taxes but does not include income taxes.
(d) Expenditures described in section 173 to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical are chargeable to capital account only in accordance with and in the manner provided in the regulations under section 173.
Notes of Decisions
Cited in
34
cases, 1961–2016 · leading case:
Beyer v. Comm'r, 92 T.C. 1304 (Tax Ct. 1989).
Beyer v. Comm'r, 92 T.C. 1304 (Tax Ct. 1989).
· cites it 4× “The regulations under section 1016 provide that no adjustment to basis shall be made in respect of any item which, under any applicable provision of law or regulation, is treated as an item not properly chargeable to capital account but is allowable as a deduction in computing…”
Norwest Corp. v. Comm'r, 111 T.C. 105 (Tax Ct. 1998).
· cites it 2× “1016(a)(1), in part, provides that proper adjustment is to be made for expenditures, receipts, losses, or other items, properly chargeable to capital account. Sec. 1.1016-2(a), Income Tax Regs.”
Berger v. Comm'r, 1996 T.C. Memo. 76 (Tax Ct. 1996).
· cites it 2× “Some of these adjustments, as we have seen, have already been accounted for in respondent's figure of $ 75,945. However, those not so accounted for include: (1) The income, from whatever Woodbine-associated source, that Howard Berger must accrue or had otherwise included no…”
Niemann v. Comm'r, 2016 T.C. Memo. 11 (Tax Ct. 2016).
· cites it 2× “The cost of the improvements (not at issue here) that Niemann made to the properties before he sold them is properly included in his bases because they are part of the cost of the property.”
Avery v. Comm'r, 66 T.C.M. 305 (Tax Ct. 1993).
· cites it 2× “Sec. 1012. An adjustment to basis is made for the cost of improvements and betterments made to the property.”
Lare v. Comm'r, 62 T.C. 739 (Tax Ct. 1974).
· cites it 2× “, provides that "No adjustment shall be made in respect of any item which, * * *, is treated as an item not properly chargeable to capital account but is allowable as a deduction in computing net or taxable income for the taxable year.”
Haynsworth v. Comm'r, 68 T.C. 703 (Tax Ct. 1977).
· cites it 2× “, provides: When a part of a larger property is sold, the cost or other basis of the entire property shall be equitably apportioned among the several parts, and the gain realized or loss sustained on the part of the entire property sold is the difference between the selling…”
Morrison v. Comm'r, 71 T.C. 683 (Tax Ct. 1979).
· cites it 2× “1.1016-2(a), Income Tax Regs. We believe the record demonstrates that petitioner followed the practice of deducting these items currently.”
Cohan v. Comm'r, 2012 T.C. Memo. 8 (Tax Ct. 2012).
· cites it 2× “Fryzel's advice concerning HCAC's and petitioners' reporting of the 2001 transaction for Federal income tax purposes. Mr. Fryzel testified that he advised HCAC on whether to include in income the value of the new beach rights and the release of the reciprocal right.”
Hill v. Comm'r, 66 T.C. 701 (Tax Ct. 1976).
· cites it 2× “↩ , states that expenditures properly chargeable to capital account include "the cost of improvements and betterments made to property.”
Chandler v. Comm'r, 142 T.C. 279 (Tax Ct. 2014).
· cites it 2× “The burden may shift to the Commissioner if the taxpayer introduces credible evidence supporting a basis increase.”
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