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to invest substantial funds in remodeling and upgrading their
homes. Hence, petitioners’ difficulties are more akin to a
temporary fluctuation in value, which no court has found to
support a deduction under section 165(c)(3). We therefore hold
that petitioners have failed to establish their entitlement to a
casualty loss deduction. Respondent’s determination of a
deficiency is sustained.
Additionally, in light of our holding that the element of
physical damage must be present, we also grant respondent’s
motion in limine to exclude the report of petitioners’ expert,
Randall Bell (Bell), a real estate appraiser. Bell’s report
focuses on the diminution in value that can result from the
stigma which attaches to crime scene property. As this
information relates solely to the issue of buyer resistance, the
report is irrelevant to our decision. Furthermore, we note that
because Bell bases his conclusions on studies of actual murder
scenes and offers no examples or statistics regarding the effect
of a homicide on values of either neighboring properties or the
killer’s residence, the probative worth of his report, even if
admitted, would at best be minimal.
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