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the Property. Petitioner supplied the C.P.A. with all relevant
information to prepare petitioner's return, and petitioner relied
on the C.P.A. to report the sale of the Property correctly. The
C.P.A. advised petitioner that he was entitled to claim an
ordinary loss on his sale of the Property.
Petitioner's 1992 Schedule C was the first Schedule C that
petitioner had filed with respect to the Property. On his 1990
income tax return, petitioner deducted the Property's real estate
taxes on Schedule A, Itemized Deductions.
The notice of deficiency states that petitioner's $71,504
loss was a long-term capital loss.
OPINION
We must decide whether the Property was a capital asset in
petitioner's hands. A "capital asset" includes all property held
by a taxpayer, with certain exceptions. The parties focus on one
of these exceptions, namely, "property held by the taxpayer
primarily for sale to customers in the ordinary course of his
trade or business". Sec. 1221(1). If the Property is within
this exception, petitioner's $71,504 loss is deductible in full.
See sec. 165(a), (c)(1). If the Property is not within this
exception, petitioner's recognizable loss for 1992 with respect
to the Property (and other capital assets) is allowable only to
the extent of any gains from the sale or exchange of capital
assets plus (if the capital loss exceeds gains) the lesser of
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