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adjusted basis in a 1970 Plymouth Barracuda automobile sold
during that year. During 1989, in connection with his classic
car restoration and sales activity, petitioner purchased a 1970
Plymouth Barracuda automobile for restoration and resale. After
extensively restoring the Barracuda, petitioner encountered some
difficulty in selling the car. However, petitioner eventually
sold the Barracuda during 1996 for $29,000, at a substantial
loss. On the classic car restoration Schedule C of their 1996
return, petitioners reported sales income of $29,000 in
connection with the Barracuda and an adjusted basis in the car
(reported as cost of goods sold) of $76,771. Thus, petitioners
claimed a loss of $47,771 from the sale of the Barracuda. After
deducting $1,770 in other various expenses, petitioners claimed a
net loss of $49,541 from the classic car restoration and sales
activity. In the notice of deficiency, respondent disallowed
$8,737 of the $76,771 claimed adjusted basis in the Barracuda.
Section 1011(a) provides that the adjusted basis for
determining gain or loss from the sale or other disposition of
property is the basis determined under section 1012, adjusted as
provided in section 1016. Generally, under section 1012, the
basis of property is its cost. The cost is the amount paid for
such property in cash or other property. Sec. 1.1012-1(a),
Income Tax Regs. The cost basis is increased by the cost of
capital improvements and betterments made to the property. Sec.
1016(a)(1); sec. 1.1016-2(a), Income Tax Regs. Moreover, the
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