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cost of purchasing the King of Prussia property includes only
one-half of the outstanding mortgage balance in addition to one-
half the reconstruction costs. See, e.g., Snowa v. Commissioner,
T.C. Memo. 1995-336; Kellogg v. Commissioner, supra.
For purposes of section 1034, petitioner husband's cost of
purchasing the King of Prussia property is one-half of the
amounts expended for reconstruction and renovation of this
property, plus one-half of the outstanding mortgage balance.
These amounts ($114,736 + $70,403) total $185,139. Accordingly,
because the adjusted sale price of the old residence exceeds his
purchase price in the new residence by more than the gain
realized ($340,798 less $185,139 equals $155,659, which is more
than $106,509), petitioners must recognize all of the gain
realized on the sale of petitioner husband's old residence.
Petitioners have conceded that the addition to tax under section
6653(a)(1) for negligence is applicable to any deficiency
determined in this case.
Based on the foregoing,
Decision will be entered
for respondent.
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Last modified: May 25, 2011