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These insurance proceeds were reinvested in the reconstruction of
the apartment buildings. Additionally petitioners invested
$483,000 in the reconstruction of the damaged apartments.
On their income tax return for 1994 the petitioners claimed
a casualty loss of $455,720. This loss was calculated by
subtracting an after casualty fair market value of $1,544,280
from a precasualty fair market value of $2 million.
Discussion
Respondent determined that petitioners are not entitled to
the casualty loss claimed on their 1994 Federal income tax return
because petitioners’ adjusted basis in the property was less than
the insurance proceeds received by petitioners for the loss.
Petitioners argue that since the insurance proceeds were
reinvested in qualifying property under section 1033 the full
amount of the economic loss should be deductible. Petitioners
calculate their loss as follows:
Fair market value prior to casualty $2,000,000
Fair market value after casualty -750,000
Gross casualty loss 1,250,000
Less insurance proceeds -767,000
Net casualty loss 483,000
(Casualty loss less than basis)
Section 165 provides for the deduction of a loss and in
pertinent part provides:
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Last modified: May 25, 2011