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Further, the amount of a casualty loss deduction under
section 165(c)(3), which applies to property, is limited to the
lesser of the reduction in fair market value as a result of the
casualty or the property’s adjusted tax basis. Godwin v.
Commissioner, T.C. Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th
Cir. 2005); sec. 1.165-7(b)(1), Income Tax Regs.
Generally, adjusted basis refers to the amount paid for
property increased and decreased by various adjustments such as
cost of improvements and depreciation. Secs. 165(b), 1011(a),
1016; secs. 1.1011-1, 1-1012-1(a), Income Tax Regs.
The above tax basis limitation set forth in the regulations
prevents petitioners herein from obtaining a casualty loss
deduction relating to petitioner’s uncollected judgment.
Petitioner did not include any portion of the $166,013
uncollected judgment in income and did not establish any tax
basis therein. No section 165(c)(3) loss deduction is allowable
with respect thereto.
In consolidated docket Nos. 4970-05 and 2475-04, petitioners
litigated before us for 2000 and 2001 the same issues raised
herein. We held that petitioner’s Social Security disability
benefits are taxable and that petitioners may not deduct under
section 165(c)(1) or (2) any portion of the $166,013 uncollected
judgment. See Green v. Commissioner, T.C. Memo. 2006-39.
Petitioners’ appeal thereof is currently pending in the U.S.
Court of Appeals for the Ninth Circuit.
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Last modified: November 10, 2007