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property before the casualty and the fair market value of the
property after the casualty (without consideration of insurance
received) and (2) the adjusted basis of the property before the
casualty. In this case the difference in fair market values is
$1,250,000 and the adjusted basis was $672,093. The lesser
amount of $672,093 is the amount of petitioners’ loss.
Second, the amount of the loss deductible under section
165(a) is the loss "not compensated for by insurance"; i.e.,
reduced by the insurance received. See sec. 1.165.7(b)(3),
Examples (1) through (3), Income Tax Regs. In this case the
insurance received exceeds the loss (adjusted basis of the
property prior to the casualty), and therefore there is no
allowable casualty deduction.
We hold that petitioners are not entitled to the $455,720
casualty loss claimed on their 1994 Federal income tax return.
Accordingly,
Decision will be entered
under Rule 155.
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Last modified: May 25, 2011