Scott L. Lafavre and Shari L. Lafavre - Page 5




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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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