- 35 -
that the sale price was properly $2,272,776. Based on these
amended figures, petitioners argue they would be entitled to
claim a loss.19
Respondent contends that petitioners should recognize gain
from the transfer of the Crestwood property computed as the
difference between the fair market value of the Crestwood
property and petitioners’ cost basis. Specifically, respondent
contends that the deemed gain is $750,000, which is the
difference between $2,525,000, the fair market value of the
property (the gross sale proceeds of the property received by
Prudential Bancorp) and petitioners’ basis in the property.
Respondent determined petitioners’ basis in the Crestwood
property to be $1,775,000, comprising two amounts--$375,000 and
$1.4 million. These amounts represent the loan from Concordia
Bank, the proceeds of which were used by petitioners to construct
a residence on the property, and the cost of the land.
Based on the documentary evidence and petitioners’s
testimony, it is apparent that petitioners’ basis in the
Crestwood property exceeded the outstanding balance of the
mortgage and the cost of the land. The additional amount is
attributable to the outstanding mechanic's liens. In these
circumstances, petitioners’ testimony, along with other related
19 Assuming petitioners' amended figures to be correct, the
transaction would have resulted in a gain of $86,776. See sec.
1.1001-2(a), Income Tax Regs.
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