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difference between the total sales prices from both sales
($161,055) and petitioners' total adjusted basis in both
properties ($117,422). The parties now stipulate that
petitioners did not receive the sales proceeds that exceeded the
amounts due on the mortgages. As a result, respondent has
conceded $29,208 of the $43,633 adjustment for capital gains, and
now contends that petitioners only had gain of $14,425, which is
the difference between their total adjusted basis in the two
properties ($117,422) and the combined mortgage liabilities from
which they were relieved ($131,847). Petitioners continue to
claim that they had no gain because they did not receive any
proceeds from the foreclosure sales.
Section 1001(a) defines gain or loss from the sale or other
disposition of property as the difference between the "amount
realized" and the taxpayer's adjusted basis in the transferred
property. The amount realized is the sum of any money received
plus the fair market value of the property (other than money)
received. Sec. 1001(b). The amount realized from a sale or
disposition of property includes the amount of liabilities from
which the transferor is discharged as a result of the sale or
disposition, including a sale in foreclosure. Crane v.
Commissioner, 331 U.S. 1 (1947); United States v. Hendler, 303
U.S. 564 (1938); Chilingirian v. Commissioner, 918 F.2d 1251 (6th
Cir. 1990), affg. T.C. Memo. 1986-463; sec. 1.1001-2(a)(1),
Income Tax Regs.
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