Perry H. Kay, Sr. - Page 17

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          between the fair market value of the property immediately before            
          the casualty and the fair market value of the property                      
          immediately after the casualty, with the deductible amount not to           
          exceed the adjusted basis of the property (fair market value                
               To establish the amount of the loss, the relevant fair                 
          market values of the property “shall generally be ascertained by            
          competent appraisal.”  Sec. 1.165-7(a)(2)(i), Income Tax Regs.              
          The appraisal must be conducted in a manner to ensure that any              
          casualty loss deduction “be limited to the actual loss resulting            
          from damage to the property.”  Id.                                          
               Section 1.165-7(a)(2)(ii), Income Tax Regs., provides that             
          the cost of repairs to the damaged property is acceptable as                
          evidence of the loss of value to the property (cost of repairs              
          approach).  In order to use this alternative approach, the                  
          taxpayer must show:  (1) The repairs are necessary to restore the           
          property to its condition immediately before the casualty; (2)              
          the amount spent for such repairs is not excessive; (3) the                 
          repairs do not care for more than the damage suffered; and (4)              
          the value of the property after the repairs does not as a result            
          of the repairs exceed its value immediately before the casualty.            
               For the year at issue, petitioner claimed a casualty loss              
          deduction of $5,151.19 on Schedule A.  Petitioner determined the            

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