The opinion
*1102 OPINION.
Trammell:
It is the contention of the taxpayer that it is entitled to a deduction in the fiscal year ended in 1921, on account of the obsolescence of its bank building which was altered and remodeled in that part of the fiscal year which was in the calendar year 1920. In the opinion of the Board the situation presented by the taxpayer is not one which would entitle it to an obsolescence deduction.
Obsolescence is a process, more or less gradual, of becoming obsolete, and a deduction is spread over the years from the time that process begins until the property becomes obsolete. There is no evidence in this appeal of any such fact. The destruction or removal of parts of a building during the taxable year is not the subject of an obsolescence deduction.
We should go further, however, and determine upon the evidence presented whether the taxpayer is entitled to the deduction claimed on any other theory. Parts of the building were torn out and demolished.
The statute provides for a deduction on account of losses sustained during the taxable year. The expression “ losses sustained ” means actual losses and not paper losses. Where the March 1, 1913, value of property was greater than the cost, the actual loss sustained when the property is destroyed or demolished must be based on the cost of the property. Any other interpretation would be inconsistent with the principle announced in United States v. Flannery, 268 U. S. 98 ; and McCaughn v. Ludington, 268 U. S. 106 . While in those cases losses on the sale of assets and not losses on account of destruction of property were involved, the basic principle is the same. In the case of a loss on the sale of property the statute expressly provides that, for the purpose of ascertaining the gain *1103 derived or loss sustained in the case of property acquired before March 1, 1913, the basis for determining the deductible loss is the March 1, 1913, value. Yet the court held that the March 1, 1913, value was merely a guide-post to determine whether a loss had been sustained since March 1, 1913, and that the loss was not to be based on March 1, 1913, value unless that value was less than cost. The principle applies with equal force in the case of a loss on account of destruction of property. The basic principle of the decisions in the Flannery and Ludington cases was that the March 1, 1913, value of the property subsequently disposed of was not the fixed basis for computing the loss.
Since the building involved in this appeal cost less than its March 1, 1913, value, the loss which the taxpayer may deduct should be based upon cost and not upon the March 1, 1913, value. The evidence introduced related to the replacement cost of the portions of the building which were torn out and demolished. While it is not conceded that replacement cost on March 1,1913, and the fair market value on that date would be the same, but, admitting that it were true for the purpose of this appeal, there is no evidence that the proportionate replacement cost on March 1, 1913, had any relation to the proportionate actual cost when the building was erected in 1896. We have no evidence before us as to what were the proportionate costs of the portions of the building which were torn away, and in the absence of any evidence on this point we are unable to determine what deduction the taxpayer would be entitled to receive. On account of the lack of evidence, therefore, we are unable to decide that the determination of the Commissioner was not correct.