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Military property. About 4 days after the Northridge earthquake,
petitioners rented the Military property.
Petitioners filed a claim with their property insurance
carrier with respect to the earthquake. The insurance adjuster
estimated that the repair necessary to address the earthquake
damage was $9,221, an amount that was less than petitioners’
$9,530 policy deductible for earthquake damage. Petitioners
consulted with a real estate company, seeking an opinion as to
the decrease in fair market value, if any, due to the earthquake.
The real estate company opined that the Military property lost
approximately $30,000 in value due to the earthquake. The
reduction in value was attributable to the actual damage and also
to the safety issues that may be perceived by potential buyers of
damaged older homes in areas prone to earthquake damage.
On their 1994 joint income tax return, petitioners, on
advice of their return preparer, claimed a $25,000 business
casualty loss on the premise that the Military property was held
for business or other income-producing purposes; i.e., for rental
or sale at the time of the earthquake. Respondent determined
that petitioners were not entitled to a casualty loss.
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Last modified: May 25, 2011