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deduct amounts compensated by “insurance or otherwise.” Sec.
165(a).
Taxpayers who suffer disaster losses in an area declared a
disaster area by the President may elect to deduct the loss in
the tax year immediately preceding the year in which the disaster
occurred. Sec. 165(i)(1).
To be eligible for a casualty loss deduction based on the
decrease in the fair market value, petitioner must prove: (a)
The fair market value of the property immediately before and
immediately after the earthquake, (b) the amount of insurance
reimbursement, and (c) the adjusted basis in the property.
Helvering v. Owens, 305 U.S. 468 (1939); Lamphere v.
Commissioner, 70 T.C. 391, 395-396 (1978); Cornelius v.
Commissioner, 56 T.C. 976, 979 (1971); sec. 1.165-7(a)(2), Income
Tax Regs.2
2 Sec. 1.165-7(a)(2), Income Tax Regs., provides:
(2) Method of valuation. (i) In determining the
amount of loss deductible under this section, the fair
market value of the property immediately before and
immediately after the casualty shall generally be
ascertained by competent appraisal. This appraisal
must recognize the effects of any general market
decline affecting undamaged as well as damaged property
which may occur simultaneously with the casualty, in
order that any deduction under this section shall be
limited to the actual loss resulting from damage to
the property.
(ii) The cost of repairs to the property damaged
is acceptable as evidence of the loss of value if the
taxpayer shows that (a) the repairs are necessary to
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