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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
approach).
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.
Id.
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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