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This leaves petitioner with $384,000 in claimed equity as a
contribution deduction. However, the land installment contract
states that in event of default, petitioner may sue to recover
principal payments only in excess of $320,000. ($1,280,000 x
.25).
Petitioner maintains that he never defaulted on the
contract. He contends that he made the donation before the
October interest due date, fulfilling his obligation without
default. In a contract, however, default occurs when a party to
the agreement fails to fulfill a stated material term. Franconia
Associates v. United States, 536 U.S. 129, 142-143 (2002).
Petitioner failed to pay the real estate taxes as required in the
contract, placing him in default. As petitioner defaulted,
Jellico is entitled to 25 percent of the $1,280,000 purchase
price, or $320,000, per the contract. This leaves petitioner
with $64,000 in remaining equity ($384,000 - $320,000). Of this
sum, Jellico is entitled to deduct the final interest payment and
the unpaid property taxes as damages. This amounts to
$51,286.72. Therefore, petitioner’s remaining equity and actual
charitable contribution is $12,713.28 ($64,000 - $51,286.72).
III. Theft Loss Deductions
Section 165 grants a taxpayer a deduction of any loss
sustained during a taxable year as a result of theft. Sec.
165(c)(3), (e). In order to claim this deduction, a taxpayer
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