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The parties now agree that the adjusted basis in the Mystic
Lake property as of the date of the distribution was $129,499.
Consequently, we turn our attention to the fair market value of
that property as of the date it was distributed.
Each party employed a valuation expert to determine the fair
market value of the Mystic Lake property as of March 2, 1995.
Both experts appraised the land separately from the improvements,
and each expert relied, at least in part, on comparable sales in
formulating his opinion of the property’s fair market value.
According to petitioner’s expert, James Searcy, the fair
market value of the Mystic Lake property as of the date of the
distribution ranged from $104,444 (income approach) to $135,780
(cost minus depreciation approach, allocating $77,000 to land and
$58,780 to improvements). Mr. Searcy determined that the “final
reconciliation of value” was $125,000, which also represented his
estimate of the property’s fair market value using the market
approach to valuation. In arriving at his cost estimate of
value, Mr. Searcy used the cost minus depreciation approach. He
estimated the replacement cost of the three small structures to
be $137,700, but reduced this amount by 60 percent to $55,080 to
account for depreciation. Mr. Searcy considered the largest of
the four structures located on the property to be functionally
obsolete on the date of the distribution and assigned no value to
that structure. Applying the allocation between land and
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