A 1971 court case lays out a precedent for what occurs when a taxpayer exchanges joint interest in depreciable property for a co-owner's interest in non-depreciable property.

A taxpayer was co-owner of both depreciable and non-depreciable property and bought out the other owner’s interest in an “exchange” that lacked economic substance.  Then the taxpayer exchanged his joint interest in the depreciable property for the co-owner’s interest in the non-depreciable property.  On the same day, the depreciable assets were purchased from the co-owner.  The taxpayer was hoping for a basis for depreciable assets equal to the purchase price.  The court allocated the purchase price between both the depreciable and non-depreciable property.  Harris, Era v. Comm (1971, CA9) 27 AFTR 2d 71-824.