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individual’s adjusted gross income. Sec. 165(h)(1) and
(2)(A)(ii).
The regulations provide two methods of valuing a casualty
loss; namely, the decrease in fair market value or the cost of
repairs. Sec. 1.165-7(a)(2), Income Tax Regs. To be eligible
for a casualty loss deduction based on the decrease in the fair
market value, a taxpayer must prove (a) the fair market value of
the property immediately before and immediately after the
casualty, (b) the amount of insurance reimbursement, and (c) the
adjusted basis in the property. Helvering v. Owens, 305 U.S. 468
(1939); Lamphere v. Commissioner, 70 T.C. 391, 395-396 (1978);
Cornelius v. Commissioner, 56 T.C. 976, 979 (1971); sec. 1.165-
7(a)(2), Income Tax Regs.2
2 Sec. 1.165-7(a)(2), Income Tax Regs., provides:
(2) Method of valuation. (i) In determining the amount
of loss deductible under this section, the fair market
value of the property immediately before and
immediately after the casualty shall generally be
ascertained by competent appraisal. This appraisal
must recognize the effects of any general market
decline affecting undamaged as well as damaged property
which may occur simultaneously with the casualty, in
order that any deduction under this section shall be
limited to the actual loss resulting from damage to the
property.
(ii) The cost of repairs to the property damaged
is acceptable as evidence of the loss of value if the
taxpayer shows that (a) the repairs are necessary to
restore the property to its condition immediately
before the casualty, (b) the amount spent for such
repairs is not excessive, (c) the repairs do not care
(continued...)
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