Shirley Dean Emmons and Charles W. Emmons - Page 3

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          the property in the amount of $43,356.  The property was                    
          foreclosed and sold in that year for $54,435.  Of this amount,              
          $43,356 was used to pay off petitioners' mortgage on the                    
          property.  Petitioners did not receive any other amounts from the           
          sale.                                                                       
               In 1991, petitioners' adjusted basis for the Campbell                  
          property was $84,459, and they were personally liable for a                 
          mortgage on the property in the amount of $88,491.  The property            
          was foreclosed and sold in that year for $106,620.  Of this                 
          amount, $88,491 was used to pay off petitioners' mortgage on the            
          property.  Petitioners did not receive any other amounts from the           
          sale.                                                                       
               On their 1991 Federal income tax return (return),                      
          petitioners did not report any gain with respect to the                     
          foreclosure transactions, but instead claimed a deduction for               
          ordinary losses on Form 4797 in the amount of $13,600, which                
          petitioners computed as the excess of the properties' foreclosure           
          sales prices over the mortgage balances plus depreciation.  In              
          effect, petitioners claimed a loss for their equity in the                  
          properties less depreciation.                                               
               Petitioners' return was filed on October 16, 1992.                     
               In the notice of deficiency, respondent disallowed the                 
          $13,600 in claimed losses and determined that petitioners had               
          long-term capital gains in the amount of $43,633, computed as the           






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