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Deductions under the above-cited regulation are, however,
“limited to the actual loss resulting from damage to the
property.” Id. An alternative approach to valuing a loss from
damage to property is for a taxpayer to present evidence of
repairs to the subject property. See sec. 1.165-7(a)(2)(ii),
Income Tax Regs. In that regard, a taxpayer must show that the
repairs were made to restore the property to its precasualty
condition and not to improve the property. See id.
In this case, petitioners provided evidence in an attempt to
show the effect of earthquake damage on the fair market value of
their property. The real estate agent’s opinion that the value
decreased by about $30,000 is in line with the $25,000 claim
petitioners made on their 1994 income tax return. The opinion,
however, was based on actual damage and also on the safety issues
that may be perceived by potential buyers of damaged older homes
in areas prone to earthquake damage. Under the above-quoted
regulation, however, petitioners’ claim would be limited to the
amount of actual damage. See id.; see also Kamanski v.
Commissioner, 477 F.2d 452 (9th Cir. 1973), affg. T.C. Memo.
1970-352; Pulvers v. Commissioner, 407 F.2d 838, 839 (9th Cir.
1969), affg. 48 T.C. 245 (1967); Chamales v. Commissioner, T.C.
Memo. 2000-33.
Petitioners also attempted to show that the damage exceeded
$25,000 by showing the extensive expense incurred in connection
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