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relatives for financial assistance. The following Spring, in
April or May, repairs to their residence began, which repairs
were completed in August or September 1996.
Petitioners filed a U.S. Individual Income Tax Return, Form
1040, for 1996. Petitioners attached to their return Schedule A,
Itemized Deductions, and claimed thereon a casualty loss in the
amount of $7,194. In support of this loss, petitioners also
attached to their return Form 4684, Casualties and Thefts. The
form suggests that petitioners used the cost of repairs as the
measure of their loss.
Discussion
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. 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.
Issue (1): Year in Which the Loss Was Sustained
Respondent properly concedes that the loss incurred by
petitioners from the Northridge earthquake arose from a casualty
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