                   T.C. Summary Opinion 2002-9



                     UNITED STATES TAX COURT



               JOHN N. SHELTON, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15341-99S.              Filed February 6, 2002.



     John N. Shelton Jr., pro se.

     Chang Ted Li, for respondent.


     GOLDBERG, Special Trial Judge:    This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.    Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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     Respondent determined the following deficiencies and

additions to tax with respect to petitioner’s Federal income

taxes:

                                             Additions to Tax
     Taxable Year      Deficiency      Sec. 6651(a)(1)   Sec. 6654

         1994          $11,118              $2,736.25        $566.94
         1995            8,322               2,068.50         448.32
         1996            9,203               1,721.50         352.78
         1997           10,909               2,360.75         496.50

     After concessions, which are discussed below, the issues to

be decided involve the correct amount of rental income for each

taxable year at issue and the amount of allowable expense

deductions.     Petitioner failed to file Federal income tax returns

and failed to make estimated tax payments for the taxable years

1994 to 1997, inclusive.      As a result, respondent prepared

substitute returns for each of the taxable years in issue, and in

the notice of deficiency made the following adjustments:

                                                Taxable Year
                              1994           1995       1996       1997

     Wage income received   $48,857         $39,543     $43,045   $49,610
     Interest income             20              28          24      --
     Rental income            5,000           5,000       5,000     5,000

     Respondent computed the above deficiencies allowing

petitioner the standard deduction and one exemption and using the

tax table for married individuals filing separately.

     The parties stipulated that petitioner received income

during each of the taxable years as follows:
                                    -3-
                                             Taxable Year
                                1994        1995         1996         1997

Wage income--U.S.            $45,546.33   $36,170.40   $39,020.91   $45,207.89
 Postal Service
Wage income--Baltimore Area      900.00      900.00     1,000.00     1,000.00
 Local APWU
Interest income--U.S.             20.00       28.00        24.00        -0-
 Postal Service Credit Union

     Petitioner stipulated that he failed to file Federal income

tax returns and failed to make estimated tax payments for the

taxable years 1994 to 1997, inclusive.

     The Court will treat the stipulations as concessions by the

parties resolving the issues of unreported wage income and

interest received for each of the taxable years at issue and the

issues relating to the additions to taxes pursuant to sections

6651(a)(1) and 6654.

     Some of the facts have been stipulated and are so found.

The stipulation of facts, supplemental stipulation of facts, and

the exhibits are incorporated herein by this reference.               At the

time of the filing of the petition, petitioner resided in

Finksburg, Maryland.

     Petitioner has been employed by the U.S. Postal Service in

the main post office in Baltimore for more than 12 years,

including the taxable years in issue.

     Gross income includes all income from whatever source

derived.   Sec. 61(a).    Section 61(a)(5) specifically includes

income derived from rents.

     During the taxable years in issue, petitioner owned
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residential rental property located at 3313 Taney Road,

Baltimore, Maryland.     The property consists of a two-story

shingle house with a driveway.     There is an apartment on each

floor.    Petitioner purchased the property in September 1985 and

paid $47,764.95 for the dwelling and land.

     During the years at issue, petitioner rented the first floor

apartment to Mr. and Mrs. Lewis Reavis.       During 1994 and 1995 the

Reavises paid $200 per month rent.       During 1996 and 1997 the

Reavises paid $250 per month rent.       Petitioner paid for all

utilities.    The second floor apartment has been vacant for some

time.    When both apartments were rented in 1993, petitioner

received about $5,000 in rent.

     At trial the Court received into evidence four Schedules E,

Supplemental Income and Loss, one for each taxable year in issue,

prepared by petitioner for purposes of trial, reconstructing the

rents received, and expenses relating to the Taney Road property.

The schedules are summarized below:

                                               Taxable Year
                                1994       1995         1996       1997

 Rental income                 $2,400     $2,400     $ 3,000    $3,000

 Expenses:
   Insurance                      458        460         510        510
   Mortgage interest            9,935     10,396       9,953      9,683
   Repairs                      1,175        675       1,275      3,494
   Supplies                      -0-       3,602         645        887
   Taxes                        1,781      1,844       2,078      4,363
   Utilities                    1,803      2,125       2,036      1,912
     Total expenses            15,152     19,102      16,497     20,849
      Add: Depreciation         1,737      1,737       1,737      1,737
     Total expenses            16,889     20,839      18,234     22,586
   Losses from real estate    (14,489)   (18,439)    (15,234)   (19,586)
                                 -5-

     Petitioner’s uncontroverted testimony is credible, and we

find that he received rental income in 1994, 1995, 1996, and 1997

in the amounts of $2,400, $2,400, $3,000, and $3,000,

respectively, and not the $5,000 amount for each year as

determined in the notice of deficiency.

     Section 212(2) allows as a deduction all ordinary and

necessary expenses paid during the year for the management,

conservation, or maintenance of property held for the production

of income.   A taxpayer is required to maintain records sufficient

to establish the amount of his income and deductions.          Sec. 6001;

sec. 1.6001-1(a), (e), Income Tax Regs.

     At the conclusion of the trial, the Court held the record

open for the receipt of evidence substantiating expenses relating

to the rental property because petitioner failed to present any

documentation at trial.    The parties filed a supplemental

stipulation of facts in which they stipulated that petitioner

paid the following amounts for mortgage interest:

                                         Taxable Year
                              1994      1995         1996        1997

     Household Bank, FSB   $4,103.39   $4,193.91   $4,330.28      -0-
     U.S. Dept. of HUD      5,983.39    6,444.88      -0-         -0-
       Total               10,086.78   10,638.79    4,330.28      -0-

     Based on the supplemental stipulation of facts, petitioner

is allowed deductions for mortgage interest in these amounts for

the respective years.

     Based on the documentary evidence, attached as exhibits to
                                -6-

the supplemental stipulation of facts, petitioner established,

that he paid real property taxes in 1994, 1995, and 1997 in the

amounts of $1,781.04, $1,843.55, and $4,363.16, respectively.     We

hold that he is entitled to deductions in these amounts for those

years.   Further, petitioner is entitled to deductions for 1996 of

$200 for water expenses and for 1995 of $777.51 for repairs.

Although we realize petitioner incurred many more expenses in

connection with the operation of the rental property, in the

absence of any documentation we are unable to estimate additional

expenses that would ordinarily be deductible.    Unfortunately,

petitioner has not been helpful, and, therefore, we cannot allow

any additional deductions because we have no basis for

determining how much was paid during the years in issue.

     With respect to depreciation, section 167(a) and (c) allows

a taxpayer to claim a depreciation deduction for property held

for the production of income for which he established an adjusted

basis as provided in section 1011.    The phrase “held for the

production of income” has the same meaning in section 212 and

section 167.   Mitchell v. Commissioner, 47 T.C. 120, 129 (1966).

     Section 168(b)(3)(B) provides that the straight line method

of depreciation is applicable to residential rental property and

section 168(c) provides for the applicable recovery period of

27.5 years for such property.   Further, section 168(d)(2)

provides, with respect to residential rental property, that the
                                     -7-

applicable convention is the midmonth convention.

     Petitioner claimed a depreciation deduction of $1,737 for

the rental property for each year in issue computed as follows:

   Month and Year              Recovery
 Placed in Service   Basis      Period        Convention     Method   Deduction

        11/89        $47,764   27.5 years        M/M          S/L      $1,737

     Petitioner’s computations are correct and comport with the

statute.    However, petitioner used the purchase price of $47,764,

as his basis for depreciation purposes, which price includes both

land and building.     The allowance for depreciation in the case of

tangible property does not apply to land.              Sec. 1.167(a)-2,

Income Tax Regs.

     Petitioner is entitled to a depreciation deduction for each

year.   Upon the basis of the record, we find the value of the

land to be $10,000, leaving petitioner with an adjusted basis for

depreciation of $37,764.       Thus, under section 168 petitioner is

entitled to a depreciation deduction of $1,373 for each taxable

year in issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                                 Decision will be entered

                                            under Rule 155.
