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4. Crow Canyon
Petitioners took out a $155,000 mortgage to purchase 400
Crow Canyon Drive, Folsom, California, (Crow Canyon) from
Fireman's Fund Insurance Company (Fireman's Fund) on December 18,
1986. Petitioners also made a $5,000 cash deposit in escrow. Of
the total $160,000 available by reason of the purchase money
mortgage and the cash in escrow, $139,000 was applied to the
purchase price of the property, and the balance to closing costs.
On January 6, 1988, the mortgagee foreclosed. On disposition of
Crow Canyon, petitioners received forgiveness of their $155,000
mortgage indebtedness.
Petitioners reported a net loss of $23,000 on the
disposition of Crow Canyon. Respondent, however, determined an
$18,826 gain. Respondent disallowed the following amounts, which
petitioners claim as part of their basis:
Item Amount
1986-1987 property taxes $964
Commission 23,000
Lost escrow deposit 5,000
Improvements 9,191
Interest paid in escrow 3,670
Total adjustment 41,825
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