                  T.C. Summary Opinion 2010-158



                     UNITED STATES TAX COURT



                  JAMES B. SWORD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14535-09S.              Filed October 25, 2010.



     James B. Sword, pro se.

     Andrew Moore and Rebecca Duewer-Grenville, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petition was filed.   Pursuant to

section 7463(b), the decision to be entered is not reviewable by

any other court, and this opinion shall not be treated as

precedent for any other case.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
                               - 2 -

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

Tax Court Rules of Practice and Procedure.

     Respondent determined a $353 deficiency in petitioner’s

2006 Federal income tax.   After concessions,1 the issue for

decision is whether petitioner is entitled to a depreciation

expense deduction for 100 percent of the cost basis of certain

capital improvements to a building in which he owned an undivided

one-half interest.

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time the petition

was filed, petitioner resided in California.

     Petitioner’s parents used their annual gift tax exclusion to

gift a portion of a building they owned to petitioner each year.

The building is a three-story Victorian house with a detached

garage.   When the total gifts represented one-half of the fair

market value of the house, petitioner’s parents executed a grant

deed in 2004 granting petitioner an undivided one-half interest

as a joint tenant in the building.




     1
      Respondent conceded the depreciation deductions relating to
the building, sewer, windows, paint, refinancing, and kitchen.
Petitioner conceded the disallowed travel expenses claimed on his
2006 Schedule E, Supplemental Income and Loss.
                                 - 3 -

     Although petitioner owned an undivided one-half interest, he

took responsibility for renting the third floor and garage; and

his parents took responsibility for renting the first two floors.

All rents were deposited into a single checking account.    Checks

were written on this account for expenses, including the purchase

of a new roof and solar panels in 2000 and 2001, respectively.

     Petitioner timely filed his 2006 Form 1040, U.S. Individual

Income Tax Return.    On the Schedule E, petitioner reported

$24,055 of rental income, expenses of $22,482 (including travel

expenses relating to the property), and depreciation of $8,845,

for a net loss of $7,272.    The depreciation expense claimed

included a deduction for 100 percent of the cost of both the roof

and the solar panels.    Petitioner asserts that he owns the

specific part of the house (the top floor and the garage) to

which the roof and the solar panels are physically attached and

thus is entitled to deduct 100 percent of the expenditures for

these improvements.    Petitioner otherwise claims a depreciation

expense deduction for one-half of the cost basis of certain other

expenditures for the building.

     In the notice of deficiency respondent determined that

petitioner is entitled to one-half of the claimed travel expenses

and one-half of the claimed depreciation expense deduction

relating to the roof and the solar panels.
                               - 4 -

                            Discussion

     In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).     Deductions

are a matter of legislative grace.     Deputy v. du Pont, 308 U.S.

488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435,

440 (1934).   A taxpayer bears the burden of proving entitlement

to any deduction claimed.   Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, supra;

Wilson v. Commissioner, T.C. Memo. 2001-139.     A taxpayer is

required to maintain records sufficient to substantiate

deductions claimed on his or her income tax return.    Sec. 6001;

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

     Pursuant to section 7491(a), the burden of proof as to

factual matters shifts to the Commissioner under certain

circumstances.   Petitioner has neither alleged that section

7491(a) applies nor established his compliance with the

substantiation and recordkeeping requirements.    See sec.

7491(a)(2)(A) and (B).   Petitioner therefore bears the burden of

proof.   See Rule 142(a).

     Section 212 allows a deduction for all of the ordinary and

necessary expenses paid or incurred during the taxable year in

the production or collection of income.    Sec. 212(1).   A taxpayer
                                  - 5 -

may be allowed as a depreciation deduction a reasonable allowance

for the exhaustion, wear and tear of property held for the

production of income.   Sec. 167(a)(2).      The parties do not

dispute that this building is a property held for the production

of income and that the owner may deduct expenses related to the

activity.   See secs. 212, 167.

     The basis upon which exhaustion, wear and tear, and

obsolescence are to be allowed in respect of any property is the

adjusted basis as provided in section 1011.       Sec. 167(c).    Under

section 1011, the adjusted basis of property is determined by the

applicable sections of subchapter O, which include section 1015.

The basis of property acquired by gift is the basis of that

property in the hands of the donor.       Sec. 1015(a).   The adjusted

basis of petitioner’s parents, the donors, is their cost basis as

adjusted by expenditures for improvements made and depreciation

previously claimed.   See secs. 1012, 1016(a).      Therefore,

petitioner’s basis in the improvements is one-half of his

parents’ adjusted basis in the improvements.

     Further, we must consider whether petitioner is entitled to

deduct 100 percent of the depreciation expense or something less.

Where property is held by joint tenants, each must report the

income and is entitled to deduct expenses related to that

property in proportion to his ownership interest.         See Gross v.

Commissioner, T.C. Memo. 1995-425.
                               - 6 -

     We look to California State statutory and judicial law to

determine petitioner’s ownership interest in the building.     The

Court considers State law to determine the nature of the

taxpayer’s property rights.   United States v. Natl. Bank of

Commerce, 472 U.S. 713, 722 (1985); Aquilino v. United States,

363 U.S. 509, 513 (1960).   The pertinent California statutory

provision defining a joint tenancy and describing the method of

its creation, Cal. Civ. Code sec. 683 (West 2007), provides:

     § 683. Joint tenancy; definition; method of creation

          (a) A joint interest is one owned by two or more
     persons in equal shares, by a title created by a single
     will or transfer, when expressly declared in the will
     or transfer to be a joint tenancy, or by transfer from
     a sole owner to himself or herself and others, or from
     tenants in common or joint tenants to themselves or
     some of them, or to themselves or any of them and
     others, or from a husband and wife, when holding title
     as community property or otherwise to themselves or to
     themselves and others or to one of them and to another
     or others, when expressly declared in the transfer to
     be a joint tenancy, or when granted or devised to
     executors or trustees as joint tenants. A joint tenancy
     in personal property may be created by a written
     transfer, instrument, or agreement.

Thus, in order to create a joint tenancy interest in property by

will or transfer, the instrument must expressly declare the

interest to be a joint tenancy.   See Hartley v. Commissioner,

T.C. Memo. 1990-14.   The grant deed expressly stated that

petitioner was granted an undivided one-half interest in the

property as a joint tenant, and thus a joint tenancy was created.
                                 - 7 -

     Since petitioner owned a one-half undivided interest in the

property, he is entitled to claim one-half of the allowable

depreciation expense deduction.    Respondent’s determination that

petitioner is entitled to one-half of the depreciation deduction

relating to the roof and solar panels is sustained.        As a result

of concessions at trial, the deficiency will be less than that

determined in the notice of deficiency.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.
