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States, 343 U.S. 118, 123 (1952). Legal expenses incurred as
part of the disposition of a capital asset ordinarily are capital
expenditures that are offset against the amount received from the
sale of the capital asset. Issac G. Johnson & Co. v. United
States, 149 F.2d 851, 852 (2d Cir. 1945); Gunn v. Commissioner,
49 T.C. 38, 51-52 (1967); see also Jasko v. Commissioner, 107
T.C. 30 (1996). Whether an expenditure is capital in nature or
deductible under sections 162 or 212 is a question of fact. Gunn
v. Commissioner, supra at 52; Plainfield-Union Water Co. v.
Commissioner, 39 T.C. 333, 337 (1962).
Petitioner's leasehold interest in rooms 103 and 141 was a
capital asset. Sec. 1221; Commissioner v. McCue Bros. &
Drummond, Inc., 210 F.2d 752, 753 (2d Cir. 1954), affg. 19 T.C.
667 (1953); Miller v. Commissioner, 48 T.C. 649, 651-652 (1967);
sec. 1.1221-1(a), Income Tax Regs. Petitioner's sale to Seawall
of his leasehold interest constitutes a sale or exchange. Sec.
1241. Petitioner paid Spyropoulos legal expenses for the sole
purpose of disposing of the leasehold interest in rooms 103 and
141. Thus, the legal expenditures of $22,500 are capital
expenditures that are offset against the gain realized by
petitioner.
In exchange for vacating rooms 103 and 141, petitioner
received use of the new apartment rent free for 3 years. The
amount realized from the taxable sale or other disposition of
property is the amount of money received plus the fair market
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