Redlands Sec. Co. v. Commissioner

1926 BTA LEXIS 2723 | B.T.A. | 1926

Lead Opinion

OPINION.

Lansdon:

The parties agree that this orange grove is a depreciable asset. It follows, therefore, that the owner of such a grove is entitled to deduct annually from gross income a reasonable allowance on account of depreciation, which must also be included as a factor in computing the gain or loss resulting from the sale of such property. The Commissioner properly considered accrued depreciation of the petitioner’s orange groves at the date of sale as an element in computing gain or loss resulting from such sale. Appeals of Even Realty Co., 1 B. T. A. 355; J. J. Gray, Jr., 2 B. T. A. 672; Walter Frank, 2 B. T. A. 905.

In the instant proceeding the Commissioner holds that the useful life of an orange grove is 30 years, and computes depreciation on the grove of 60 acres acquired by the petitioner in 1910 and sold in 1920 by applying an annual depreciation rate of 3y3 per cent to the value of such property at March 1, 1913, which was $48,000, and, in the same manner, determines accrued depreciation at date of sale of the 10-acre grove acquired in 1915 and sold in 1920. Obviously, these computations are based on the theory that each of the groves had reached the point where it was producing income at the basic dates. The petitioner agrees that the useful life of an orange grove is 30 years, but contends that such useful life begins at the date when the grove becomes an income-producing property. The parties appear to agree that after planting there is a period of some years during which there is no depreciation. The Commissioner contends that this period is not more than 3 or 4 years from the date of planting the trees in the grove. The petitioner introduced evidence that convinces us that this development period is not less than 6 years.

The grove of 60 acres acquired in 1910 was seven years old at March 1, 1913, but the evidence discloses that its maturity had been delayed for at least two years by a heavy frost or freeze that occurred in January of 1913. We are of the opinion that this grove was not a depreciable asset prior to the crop year of 1915, and that computation of gain or loss resulting from the sale thereof at February 1, 1920, should include depreciation from that year. The grove of three-year old trees acquired in 1915, which, we have found, had a value at that date of $8,000, could not have become a depreciable asset prior to 1918. The rate of exhaustion on both orchards was 3½ per cent per annum.

Judgment will be entered on 20 days’ notice, under Rule 50.