Perry H. Kay, Sr. - Page 16

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               D.  Result of Schedule C Adjustments Above                             
               Consistent with the findings above, we have recalculated               
          petitioner’s Schedule C loss from PK Production.  Petitioner is             
          entitled to a loss of $1,748.19 on Schedule C for the year at               
          issue.  Petitioner’s adjusted gross income is also recomputed to            
          reflect this amount.  Petitioner’s recomputed adjusted gross                
          income is $28,919.35 for the year at issue.                                 
          2.  Casualty Loss Deduction                                                 
               Section 165(a) allows a taxpayer to deduct any loss                    
          sustained during the taxable year and not compensated for by                
          insurance or otherwise.  As relevant here, section 165(c)(3)                
          allows a deduction to an individual for loss of “property not               
          connected with a trade or business or a transaction entered into            
          for profit, if such loss arises from fire, storm, shipwreck, or             
          other casualty”.                                                            
               Pursuant to section 165(h), personal casualty losses                   
          described under section 165(c)(3) are deductible only to the                
          extent that the loss exceeds $100 and 10 percent of the                     
          taxpayer’s adjusted gross income.  Moreover, such losses are                
          deductible as itemized deductions on Schedule A of the taxpayer’s           
               Pursuant to section 1.165-7(b)(1), Income Tax Regs., in the            
          case of property partially destroyed by casualty, the loss                  
          deductible for purposes of section 165(a) is the difference                 

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