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petitioner for that year in respect of the Merritt Island
property.7
OPINION
As a general rule, section 165(a) allows as a deduction any
loss sustained during the taxable year and not compensated for by
insurance or otherwise. However, in the case of an individual,
section 165(c) limits the deduction to: (1) Losses incurred in a
trade or business; (2) losses incurred in any transaction entered
into for profit, even though not connected with a trade or
business; and (3) losses of property not connected with a trade
or business or with a transaction entered into for profit, if
such losses arise from fire, storm, shipwreck, or other casualty,
or from theft.
In the present case, petitioner does not contend that the
foreclosure of the Merritt Island property constitutes either a
loss incurred in a trade or business or a loss incurred in a
transaction entered into for profit. Indeed, the Merritt Island
property was petitioner’s personal residence; moreover,
petitioner has never claimed that the foreclosure of the property
was other than a theft. We therefore analyze the propriety of
petitioner’s deduction under section 165(c)(3).
For purposes of section 165, the term “theft” includes, but
7 The record is not clear whether respondent ever took any
action regarding the losses claimed by petitioner for 1995
through 1997 in respect of the Merritt Island property.
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