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respect to the San Jose property, as well as a $44,872 loss on
the disposition of the property.10
Respondent disallowed petitioners’ 1992 and 1993 Schedule E
deductions relating to the San Jose property because of lack of
substantiation and on grounds that expenses from the property
were limited to rental income because of excessive personal use
of the property by petitioners or their relatives. Respondent
recharacterized the San Jose property as a capital asset and
limited petitioners’ allowable loss to $3,000 per year, in
accordance with section 1211(b).
Discussion
Deductions are strictly a matter of legislative grace, and
taxpayers bear the burden of providing supporting evidence to
substantiate claimed deductions. See Rule 142(a); INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
The record is devoid of any evidence substantiating the
claimed losses and expenses with respect to the San Jose
property. In particular, petitioners have failed to substantiate
the existence or amount of any net operating loss in any previous
10 Petitioners' Form 4797, Sales of Business Property,
attached to their 1993 joint Federal income tax return, states
that the San Jose property was sold in February 1992. If, as the
parties have stipulated, the bank foreclosed on this property in
December 1992, it would appear that the sales date reported on
the 1993 return was in error. The record does not clarify when
the San Jose property was actually sold.
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