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ownership. On September 2, 1988, a few weeks after petitioners
recorded their deed, they sold the house to Inderjit and Bharati
Dutt.
The gain that petitioners showed on their return and the
gain that respondent determined are as follows:
Per Return Per Exam Adjustment
Sales price $127,500 $127,500 $-0-
Purchase price, (119,560) (114,905) 4,655
improvements, and
expenses of resale
Gain 7,940 12,595 4,655
The parties' post-determination maneuvering adds complexity
to their disagreement. They stipulate or claim that some of what
was capitalized should now be deducted and some of what was
deducted should now be capitalized. First, the parties
stipulated that $1,837 previously capitalized should be deducted
as an investment interest expense. Second, petitioners assert
that $9,851 previously deducted as a rental loss should now be
capitalized. In 1988 petitioners deducted a $9,851 rental loss,
which respondent disallowed on the grounds that the property was
unproductive, and for lack of substantiation. Petitioners now
concede that they did not use the property to produce income and
that therefore they should not have taken the rental loss in
1988. They now insist, however, that the expenditures entitle
them to adjust their basis upwards.
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