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1995 through June 30, 1996 with a move-in date of July 7, 1995.
The written lease agreement required the lessee to pay in advance
the annual rent of $28,000 as follows: $5,000 deposit due by June
8, 1995 and the remaining balance due by July 1, 1995. The lease
further provided: (1) The property would remain on the market
with Prudential Real Estate; (2) the lessee would have the right
of first refusal or receive a prorated refund of the prepaid rent
if the property sold before the end of the lease term; (3) any
unused rents would be credited as a downpayment if the lessee
purchased the property before the end of the lease term; and (4)
the lease would run month-to-month at the end of the lease term
with a monthly rent of $2,300.
By the end of June 1995, petitioners moved out of the
Stewart property and into another home, which they rented for
$1,000 per month. Petitioners prepaid 6 months of this rent from
the funds received from the lessee and applied the remaining
funds toward the Stewart property mortgage. Petitioners did not
obtain an appraisal of the Stewart property at any time before
they moved out nor at any time before the lease term began. For
the taxable year 1995, petitioners claimed a depreciation
deduction on the Stewart property of $5,999.
Also in June 1995, petitioners selected Dennis Lilly of
Prudential Real Estate (Mr. Lilly) to be their exclusive listing
agent for a 6-month period. Mr. Lilly has been a real estate
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