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or the date the casualty loss, if any, was deemed sustained.
Petitioners urge us to conclude that (i) the Boyles’ adjusted
basis in the old warehouse must be calculated as of 1995, the
year the casualty loss, if any, was sustained in this case and
that (ii) the adjusted basis so calculated must include the cost
of rebuilding the warehouse.
We agree with petitioners that neither section 1.165-1(c)(4)
nor section 1.165-7(b)(1), Income Tax Regs., clearly states that
a taxpayer’s adjusted basis in property damaged or destroyed by
casualty must be calculated as of the date of the casualty. The
pertinent part of section 1.165-1(c)(4), Income Tax Regs.,
provides simply that, in determining the amount of loss actually
sustained under section 165(a), proper adjustment must be made
for any insurance received. The pertinent part of section 1.165-
7(b)(1), Income Tax Regs., provides that the amount of the
casualty loss to be taken into account under section 165(a) is
the lesser of either (i) the amount equal to the fair market
value of the property immediately before the casualty reduced by
the fair market value immediately after the casualty or (ii) the
amount of the adjusted basis prescribed in section 1.1011-1,
Income Tax Regs., for determining the loss from the sale or other
disposition of the property involved.7
7Sec. 1.1011-1, Income Tax Regs., provides that a taxpayer’s
basis in property shall be its cost, adjusted to the extent
(continued...)
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