NHUSS Trust, et al. - Page 15

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               The basis of property is determined by its cost.  Sec. 1012;           
          Gandy v. Commissioner, T.C. Memo. 1997-532, affd. 199 F.3d 440              
          (5th Cir. 1999).                                                            
               Respondent contends that petitioners have failed to                    
          substantiate a cost basis in their residence above the $163,148             
          determined by respondent at trial and that petitioners therefore            
          in 2000 realized $126,852 in capital gain on the sale.6                     
               With one exception noted below, we regard all of the costs             
          petitioners claim in excess of the $163,148 allowed by respondent           
          as not sufficiently substantiated.  We do allow petitioners an              
          increase of $24,945 in their cost basis to reflect additional               
          swimming pool improvement costs that are reflected in                       
          petitioners’ contemporaneous records (Appendix B).  Respondent              
          himself has allowed all of the other costs reflected in Appendix            
          B, and evidence relating to the swimming pool is as credible as             
          the evidence relating to the other items allowed by respondent.             
          We believe petitioners’ contemporaneous records (Appendix B)                
          substantiate a $24,945 increase in the cost basis of the swimming           
          pool to a total swimming pool cost of $31,190.                              
               The following schedule reflects our findings with regard to            
          petitioners’ cost basis in the residence at the time of its sale            
          in 2000:                                                                    


               6  The sale price of $790,000, less the $163,148 cost basis            
          respondent allows, less the $500,000 exemption, equals $126,852             
          in capital gain.                                                            




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