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deduction because petitioners had no basis in the relevant term
life insurance policy.
Section 165(a) allows a taxpayer to deduct any loss
sustained during the taxable year and not compensated for by
insurance or otherwise. In particular, section 165(c)(3) allows
a deduction to an individual for loss of property not connected
with a trade or business or a transaction entered into for
profit, if such loss arises from fire, storm, shipwreck, or other
casualty, or from theft. Personal casualty or theft losses are
deductible only to the extent that the loss exceeds $100 and 10
percent of adjusted gross income. Sec. 165(h)(1) and (2).
Moreover, such losses are deductible as itemized deductions on
Schedule A of a taxpayer's return.
The measure of a casualty or theft loss is determined by
section 1.165-7(b)(1), Income Tax Regs. Generally, the loss
shall be the lesser of (1) the fair market value of the property
immediately before the casualty reduced by the fair market value
of the property immediately after the casualty, or (2) the amount
of the adjusted basis prescribed in section 1.1011-1, Income Tax
Regs., for determining loss from the sale or other disposition of
the property. Under section 1.1011-1, Income Tax Regs., adjusted
basis is the cost or other basis of property under section 1012,
adjusted to reflect allowable deductions for depreciation under
section 1016.
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Last modified: May 25, 2011