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Petitioner’s basis in the Atascadero property is $207,500,
which is the fair market value as stipulated by the parties on
the date he acquired the property and is also the sum of the
extent to which his debt was satisfied--$38,543--and the balance
of the Great Western loan to which the property was subject--
$168,957.
On December 29, 1995, petitioner sold the Atascadero
property to Bryan Dunnivan for $200,286. Respondent has not
argued that the December 29, 1995, sale was not at arm’s length.
We hold that petitioner is allowed a $7,214 short-term capital
loss for 1995 on the sale of the property to Mr. Dunnivan.
Section 166 Deduction
When a creditor receives property on account of a recourse
debt, the debt is considered satisfied to the extent of the value
of the property acquired. Commissioner v. Spreckels, supra at
520. The unpaid balance of the debt may be deducted under
section 166 if and to the extent that the taxpayer can establish
its worthlessness. Id.; Kohn v. Commissioner, supra; Litzenberg
v. Commissioner, T.C. Memo. 1988-482; Shaheen v. Commissioner,
T.C. Memo. 1982-445; Sargent v. Commissioner, supra; see also
sec. 1.166-6, Income Tax Regs.
In the case at hand, when petitioner accepted the deed in
lieu of foreclosure, the Atascadero loan, the balance of which
was $170,371, was satisfied to the extent of $38,543, the amount
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