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4797, Sales of Business Property, petitioners claimed a deduction
of $9,719 for "Loss on Real Estate Investment (Northcliffe
Subdivision)", in connection with the Foxbriar property. On
Schedule A of their 1992 Federal income tax return, petitioners
claimed itemized deductions of $2,839 for real property taxes and
$9,102 for mortgage interest also related to the Foxbriar
property.
In the notice of deficiency, respondent disallowed
petitioners’ 1991 itemized deductions for mortgage interest and
real property taxes in their entirety but allowed petitioners
other unrelated itemized deductions that did not exceed the
standard deduction for that year. Consequently, petitioners were
allowed the standard deduction. Additionally, for 1991,
respondent disallowed the capital loss of $9,719 claimed by
petitioners on Form 4797.
For 1992, respondent disallowed $6,351 of the claimed $9,102
mortgage interest deduction and $1,469 of the claimed $2,839 real
property tax deduction.8 Respondent allowed petitioners an
additional unrelated itemized deduction; however, the allowed
itemized deductions did not exceed the standard deduction for
8 Respondent allowed deductions for mortgage interest and
property taxes paid in connection with the Foxbriar property for
August through December 1992 on the premise that petitioners
became personally liable to Lomas Mortgage in August 1992.
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