in an efficient condition for the purposes of their use may be deducted. If, however, the life of the improvement is less than the life of the lease, depreciation may be taken by the lessee instead of treating the cost as rent. See article 48. ART. 110. Expenses of farmers.-A farmer who operates a farm for profit is entitled to deduct from gross income as necessary expenses all amounts actually expended in the carrying on of the business of farming. The cost of ordinary tools, of short life or small cost, such as hand tools, including shovels, rakes, etc., may be included. The cost of feeding and raising live stock may be treated as an expense deduction, in so far as such cost represents actual outlay, but not including the value of farm produce grown upon the farm or the labor of the taxpayer. Where a farmer is engaged in producing crops which take more than a year from the time of planting to the process of gathering and disposal, expenses deducted may be determined upon the crop basis, and such deductions must be taken in the year in which the gross income from the crop has been realized. If a farm is oper ated for recreation or pleasure and not on a commercial basis, and if the expenses incurred in connection with the farm are in excess of the receipts therefrom, the entire receipts from the sale of products may be ignored in rendering a return of income, and the expenses incurred, being regarded as personal expenses, will not constitute allowable deductions. The cost of farm machinery and farm buildings represents a capital investment and is not an allowable deduction as an item of expense. Amounts expended in the development of farms, orchards and ranches prior to the time when the productive state is reached may be regarded as investments of capital. The amount expended in purchasing draft or work animals or live stock either for resale or for breeding purposes is regarded as an investment of capital. The purchase price of an automobile, even when wholly used in carrying on farming operations, is not deductible, but it is regarded as an investment of capital. The cost of gasoline, repairs and upkeep of an automobile if used wholly in the business of farming is deductible as an expense; if used partly for business purposes and partly for the pleasure or convenience of the taxpayer or his family, such cost may be apportioned according to the extent of the use for purposes of business and pleasure or convenience, and only the proportion of such cost justly attributable to business purposes is deductible as a necessary expense. See articles 38, 145 and 171. ART. 111. When charges deductible.-Each year's return, so far as practicable, both as to gross income and deductions therefrom, should be complete in itself, and taxpayers are expected to make every reasonable effort to ascertain the facts necessary to make a correct return. See articles 21-24 and 52. The expenses, liabilities or deficit of one year can not be used to reduce the income of a subsequent year. A person making returns on an accrual basis has the right to deduct all authorized allowances, whether paid in cash or set up as a liability, and it follows that if he does not within any year pay or accrue certain of his expenses, interest, taxes or other charges, and makes no deduction therefor, he can not deduct from the income of the next or any subsequent year any amounts then paid in liquidation of the previous year's liabilities. A loss from theft or embezzlement occurring in one year and discovered in another is deductible only for the year of its occurrence. Any amount paid pursuant to a judgment or otherwise on account of damages for personal injuries, patent infringement or otherwise, is deductible from gross income when the claim is put in judgment or paid, less any amount of such damages as may have been compensated for by insurance or otherwise. If subsequently to its occurrence, however, a taxpayer first ascertains the amount of a loss sustained during a prior taxable year which has not been deducted from gross income, he may render an amended return for such preceding taxable year, including such amount of loss in the deductions from gross income, and may file a claim for refund of the excess tax paid by reason of the failure to deduct such loss in the original return. See section 252 of the statute and articles 1031-1038. DEDUCTIONS ALLOWED: INTEREST. [SEC. 214. (a) That in computing net income there shall be allowed as deductions:] (2) All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917), the interest upon which is wholly exempt from taxation under this title as income to the taxpayer, or, in the case of a nonresident alien individual, the proportion of such interest which the amount of his gross income from sources within the United States bears to the amount of his gross income from all sources within and without the United States; * * * ART. 121. Interest.—Interest paid or accrued within the year on indebtedness may be deducted from gross income. But interest on indebtedness incurred or continued to purchase or carry securities, such as municipal bonds, the interest upon which is exempt from tax, is not deductible. However, this exception does not apply to obligations of the United States issued after September 24, 1917, which include the liberty bonds of the second and subsequent issues, and interest on indebtedness incurred to purchase such obligations is deductible pursuant to the general rule. See articles 77-80. Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness. Payments made for Maryland or Pennsylvania ground rents are not deductible as interest. ART. 122. Interest on capital.-Interest calculated as being a charge against income on account of capital or surplus invested in the business, but which does not represent a payment on an interest-bearing obligation, is not an allowable deduction from gross income; that is to say, the interest which the money might earn if otherwise invested is not a deductible charge against income. DEDUCTIONS ALLOWED: TAXES. [SEC. 214. (a) That in computing net income there shall be allowed as deductions:] (3) Taxes paid or accrued within the taxable year imposed (a) by the authority of the United States, except income, war-profits and excess-profits taxes; or (b) by the authority of any of its possessions, except the amount of income, war-profits and excess-profits taxes allowed as a credit under section 222; or (c) by the authority of any State or Territory, or any county, school district, municipality, or other taxing subdivision of any State or Territory, not including those assessed against local benefits of a kind tending to increase the value of the property assessed; or (d) in the case of a citizen or resident of the United States, by the authority of any foreign country, except the amount of income, war-profits and excess-profits taxes allowed as a credit under section 222; or (e) in the case of a nonresident alien individual, by the authority of any foreign country (except income, war-profits and excess-profits taxes, and taxes assessed against local benefits of a kind tending to increase the value of the property assessed), upon property or business; ART. 131. Taxes.-Federal taxes (except income, war profits and excess profits taxes), State and local taxes (except taxes assessed against local benefits of a kind tending to increase the value of the property assessed), and taxes imposed by possessions of the United States or by foreign countries (except the amount of income, war profits and excess profits taxes allowed as a credit against the tax), are deductible from gross income. See section 222 of the statute and articles 381-384 as to tax credits. Postage is not a tax. Amounts paid to States under secured debts laws in order to render securities tax exempt are deductible. Automobile license fees are ordinarily taxes. * * * ART. 132. Federal duties and excise taxes.-Import or tariff duties paid to the proper customs officers, and business, license, privilege, excise and stamp taxes paid to internal revenue collectors, are deductible as taxes imposed by the authority of the United States, provided they are not added to and made a part of the expenses of the business or the cost of articles of merchandise with respect to which they are paid, in which case they can not be separately deducted. ART. 133.1 Taxes for local benefits.-So-called taxes, more properly assessments, paid for local benefits, such as street, sidewalk and other like improvements, imposed because of and measured by some benefit inuring directly to the property against which the assessment is 1 See p. 314 for modification. evied, do not constitute an allowable deduction from gross income. A tax is considered assessed against local benefits when the property subject to the tax is limited to property benefited. Special assessnents are not deductible, even though an incidental benefit may inure o the public welfare. The taxes deductible are those levied for the general public welfare by the proper taxing authorities at a like rate gainst all property in the territory over which such authorities have urisdiction. Assessments under Illinois laws relating to drainage listricts are not limited to the property benefited, and assessments so aid are deductible. Assessments under the statutes of California elating to irrigation and of Iowa relating to drainage, and under ertain statutes of Tennessee relating to levees, are limited to property benefited, and amounts so paid are not deductible as taxes. When issessments are made for the purpose of maintenance or repair of ocal benefits, the taxpayer may deduct the assessments paid as an xpense incurred in business, if the payment of such assessments is necessary to the conduct of his business. Where the assessments are nade for the purpose of constructing local benefits, the payments by he taxpayer are in the nature of capital expenditures and are not deluctible. Where assessments are made for the purpose of both construction and maintenance or repairs, the burden is on the taxpayer o show the allocation of the amounts assessed to the different purposes. If the allocation can not be made, none of the amounts so paid s deductible. ART. 134. Inheritance taxes.-State inheritance taxes paid by the xecutor or administrator of an estate of a deceased person, which are provided by law to be deducted from the respective legacies or listributive shares, are not allowable deductions in computing the net ncome of such estate subject to tax, even though the will contains a lirection to pay inheritance taxes out of the residue. An inheritance ax is upon the transfer of the property and not upon the estate of he decedent or upon the executor or administrator, although the atter is required to pay it. In general, taxes paid or accrued within he year imposed by the authority of any State, or otherwise, are imited to those imposed upon the taxpayer and do not include taxes ɔaid by him on behalf of another, even though he is required by law o make such payment. See articles 565 and 566. Since, moreover, the ax is imposed upon the transfer before the property reaches the legaee or distributee, and merely diminishes the capital share of the estate received by him, such tax is not imposed upon the legatee or listributee and is not an allowable deduction from his income. Simiarly, federal estate taxes are not deductible. DEDUCTIONS ALLOWED: LOSSES. [SEC. 214. (a) That in computing net income there shall be allowed as deductions:] (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business; (5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; but in the case of a nonresident alien individual only as to such transactions within the United States; * * * (6) Losses sustained during the taxable year of property not connected with the trade or business (but in the case of a nonresidert alien individual only property within the United States) if arising from fires, storms, shipwreck, or other casualty, or from theft, and if not compensated for by insurance or otherwise; ART. 141. Losses.-Losses sustained during the taxable year a not compensated for by insurance or otherwise are fully deducti (except by nonresident aliens) if (a) incurred in the taxpaye trade or business, or (b) incurred in any transaction entered i for profit, or (c) arising from fires, storms, shipwreck or ot casualty, or from theft. They must usually be evidenced by clos and completed transactions. In the case of the sale of assets the l will be the difference between the cost thereof, less depreciation s tained since acquisition, or the fair market value as of March 1, 19 if acquired before that date, less depreciation since sustained, and price at which they were disposed of. See section 202 of the star and articles 39-46 and 1561. When the loss is claimed through destruction of property by fire, flood or other casualty, the am deductible will be the difference between the cost of the property its fair market value as of March 1, 1913, and the salvage vi thereof, after deducting from the cost or value as of March 1, 1 the amount, if any, which has been or should have been set aside a deducted in the current year and previous years from gross income account of depreciation and which has not been paid out in mak good the depreciation sustained. But the loss should be reduced the amount of any insurance or other compensation received. articles 49 and 50. A loss in the sale of an individual's residence not deductible. Losses in illegal transactions are not deductible. ART. 142. Voluntary removal of buildings.-Loss due to the vol tary removal or demolition of old buildings, the scrapping of machinery, equipment, etc., incident to renewals and replaceme will be deductible from gross income in a sum representing the dif ence between the cost of such property demolished or scrapped the amount of a reasonable allowance for the depreciation which property had undergone prior to its demolition or scrapping; th is to say, the deductible loss is only so much of the original cost the property, less salvage, as would have remained unextinguis had a reasonable allowance been charged off for depreciation dur each year prior to its destruction. When a taxpayer buys real est upon which is located a building which he proceeds to raze w |