Ilija and Branka Mitic - Page 8




                                                - 8 -                                                  
            return on February 3, 1995.2                                                               
                  In Schedule A, Itemized Deductions, of the 1993 joint                                
            return, petitioners claimed a deduction totaling $20,607.57 for                            
            “Medical and dental expenses”.  That deduction consisted of:                               
            (1) $3,889 for physicians and medicines; (2) $8,573 for the                                
            removal of carpeting from, and the installation of hardwood                                
            flooring in, petitioners’ residence; (3) $5,525 for repainting                             
            the interior of petitioners’ residence after the hardwood floor-                           
            ing was installed; and (4) $2,621 for renting an apartment in                              
            which petitioners lived while they had the foregoing work done in                          
            their residence.                                                                           
                  In the 1993 joint return, petitioners claimed depreciation                           
            deductions with respect to a Toyota automobile (Toyota) and                                
            claimed depreciation deductions and other deductions with respect                          
            to Mr. Mitic’s Mercedes and another automobile.                                            
                  In Schedule A of the 1994 joint return, petitioners claimed                          
            a casualty loss deduction of $40,500 with respect to Mr. Mitic’s                           
            Mercedes.  As required, petitioners filed Form 4684, Casualties                            
            and Thefts (Form 4684), with the 1994 joint return.  In section B                          
            of Form 4684, Business and Income-Producing Property, part I,                              
            Casualty or Theft Gain or Loss, petitioners indicated (1) that                             
            the “Cost or adjusted basis” of Mr. Mitic’s Mercedes was $67,500,                          



                  2The record does not disclose when Ms. Mitic signed the 1993                         
            joint return.                                                                              





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