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The Court first considers the disallowed $21,127 for
casualty and theft loss claimed as an itemized deduction on
Schedule A of petitioners’ return. The claimed loss was for
damages to a second home petitioners owned in Hawaii resulting
from a flood that was caused by a series of heavy rains.
Petitioners base their casualty loss on the value of their home
prior to the flood rains, which they estimated to be $240,000,
and their estimated value of the property at $210,000 after the
rains. The resulting diminution in value of $30,000 is the basis
upon which petitioners claimed the $21,127 loss after application
of the section 165(h)(1) and (2) limitations.
Petitioners described their loss as flooding from heavy
rains over a period of several weeks in which water seeped into
their home causing damages that petitioners repaired.
Petitioners presented no documentation to show the nature and
cost of the repairs, nor any appraisals of the property before
and after the storms. At trial, petitioner calculated the
diminution in value based upon his estimate. He admitted at
trial that he “may have erred” in claiming the $21,127 loss.
Petitioner also admitted making additional improvements to the
property beyond the flood damages.
Section 165(a) allows as a deduction any loss sustained
during the taxable year which is not compensated for by insurance
or otherwise. In the case of an individual, section 165(c)(3)
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Last modified: May 25, 2011