Tracy M. Colter and Robert N. Colter, Jr. - Page 7




                                        - 6 -                                         
               Cost or other basis of each property         $139,647                  
               Insurance or other reimbursement             107,022                   
               Fair market value before casualty            133,012                   
               Fair market value after casualty             - 0 -                     
               Amount of loss                               133,012                   
               Amount of loss not reimbursed                25,990                    
               Less $100 floor                                   100                  
               Less 10 percent of adjusted gross income     4,280                     
               Casualty loss claimed                        21,610                    

               In the notice of deficiency, respondent disallowed, at least           
          mathematically, $20,011.04 of the casualty loss deduction here in           
          dispute.  A fair reading of the explanation for this adjustment             
          suggests that respondent intended to disallow the entire amount.            
          Nevertheless, we proceed as though petitioners are entitled to a            
          casualty loss deduction of at least $1,598.96 for 1995.  In the             
          notice of deficiency respondent also determined that petitioners            
          are liable for a section 6662(a) penalty, but respondent now                
          agrees that they are not.                                                   
          Discussion                                                                  
               Subject to certain limitations, an individual is entitled to           
          a deduction for “any loss[es] sustained during the taxable year             
          and not compensated for by insurance or otherwise” that “arise              
          from fire * * * or other casualty”.  Sec. 165(a), (c)(3), (h)(1)            
          and (2).                                                                    
               To properly compute a casualty loss deduction, the following           
          values of the damaged or destroyed property must be established:            
          (1) Fair market value before the casualty; (2) fair market value            
          after the casualty; and (3) the taxpayer’s basis in the property.           





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