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The measure of a casualty or theft loss is determined by
section 1.165-7(b)(1), Income Tax Regs. Generally, the loss
shall be the lesser of (1) the fair market value of the property
immediately before the casualty reduced by the fair market value
of the property immediately after the casualty, or (2) the amount
of the adjusted basis prescribed in section 1.1011-1, Income Tax
Regs., for determining loss from the sale or other disposition of
the property. Under section 1.1011-1, Income Tax Regs., adjusted
basis is the cost or other basis of property under section 1012,
adjusted to reflect allowable deductions for depreciation under
section 1016. In this case, petitioner does not contend that any
of the relevant property was ever used in a trade or business;
consequently, the cost or basis of the property was not subject
to adjustment for depreciation. Petitioner produced no evidence
of her basis in or the fair market value of the relevant damaged
items of property.
Apart from petitioner's failure to establish basis, section
1.165-1(d), Income Tax Regs., provides:
Year of deduction. (1) A loss shall be allowed as a
deduction under section 165(a) only for the taxable year in
which the loss is sustained. * * * (2)(i) If a casualty or
other event occurs which may result in a loss and, in the
year of such casualty or event, there exists a claim for
reimbursement with respect to which there is a reasonable
prospect of recovery, no portion of the loss with respect to
which reimbursement may be received is sustained, for
purposes of section 165, until it can be ascertained with
reasonable certainty whether or not such reimbursement will
be received. Whether a reasonable prospect of recovery
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