DocketNumber: Docket No. 1799-76.
Citation Numbers: 37 T.C.M. 1556, 1978 Tax Ct. Memo LEXIS 136, 1978 T.C. Memo. 378
Filed Date: 9/21/1978
Status: Non-Precedential
Modified Date: 11/20/2020
MEMORANDUM FINDINGS OF FACT AND OPINION
DAWSON,
OPINION OF THE SPECIAL TRIAL JUDGE
FALK,
FINDINGS OF FACT
Some of the facts have been stipulated, and those*138 facts are so found.
Petitioners filed their joint 1972 federal income tax return with the Internal Revenue Service Center at Andover, Massachusetts. At the time the petition herein was filed, they resided in Coopers Plains, New York.
Petitioners own a two level home in which they have resided since 1958. Petitioner Carol W. Baker inherited the house from her father, who died on March 3, 1955.
In June, 1972, Hurricane Agnes struck the area in which petitioners' house is located and caused severe flooding and extensive damage.As a result of the flood, petitioners suffered some damage to their personal property in the house; the concrete floor of petitioners' cellar broke up and pieces of concrete were carried away; the cellar walls cracked and leaked; the basement window frames rotted; and the furnace, hot water heater, and water pump were destroyed. In addition, the flood contaminated petitioners' water well, created a large hole or crater in their front lawn, back lawn, and driveway and deposited mud behind the pegboard in the garage. Petitioners received a $ 1,200 disaster loan from the Small Business Administration (SBA), repayment of which was subsequently forgiven.*139 They were not otherwise compensated for the damage done to their home as a result of the flood.
Petitioners began work immediately after the flood to repair some of the damage done to their home. They purchased and had installed a new furnace and hot water heater for $ 1,800. The entire proceeds of the SBA loan was expended for these items. They bought a water pump and drilled a new well at a cost of $ 325 to $ 350.Petitioners filled the holes in the front and back yard with debris from the flood and purchased some topsoil for the lawn. The basement walls were whitewashed, but they still leaked at the time of trial. Petitioners expended about $ 81 on concrete to repair part of the cellar floor. At the time of trial, a portion of the cellar floor remained unrepaired as did the basement walls and window casings. The fair market value of the home was not less than $ 16,000 immediately before the flood and not more than $ 11,654 immediately thereafter. The house had a basis in petitioners' hands in excess of $ 4,346.
On their joint 1972 federal income tax return, petitioners claimed a casualty loss deduction under section 165(a) in the amount of $ 4,896. Petitioners now concede*140 that that amount should be reduced by $ 1,200; i.e., the amount of the SBA indebtedness which was forgiven. In his notice of deficiency, respondent allowed $ 346 of the claimed deduction, but disallowed the remainder for lack of substantiation. He now concedes a loss in the amount of $ 650 for damage to personal property.
OPINION
Section 165(a) permits individuals to deduct losses suffered upon the damage to or destruction of nonbusiness property by reason of fire, storm, or other casualty to the extent that the loss from each casualty not compensated for by insurance or otherwise exceeds $ 100. See sec. 165(c)(3). The proper measure of the loss sustained is the difference between the fair market value of the property immediately before the casualty and its fair market value immediately thereafter, but not to exceed its adjusted basis. See
Physical damage to property caused by a flood is clearly a casualty within the purview of section 165(c)(3), and respondent apparently*141 concedes that petitioners suffered some such damage. The questions to be resolved, then, are: (a) the amount of the actual loss sustained and (b) the adjusted basis of the property in petitioners' hands. The burden of proving these amounts rests with petitioners.
To establish the amount of the casualty loss, the fair market value of the property immediately before and immediately after the casualty "shall generally be ascertained by competent appraisal."
Petitioner Raymond v. Baker testified that the fair market value of his house was $ 16,000 to $ 17,000 immediately prior to the flood and $ 8,000 to $ 10,000 immediately thereafter. He has lived in the home continuously since 1958 and based his pre-casualty fair market value estimate on comparable sales of similar homes in the area. We found his testimony to be forth-right and believable. It appears that $ 16,000 is a reasonable, if not a conservative, estimate of the value of his home immediately before the flood and respondent offered no contradictory evidence. Even reducing the amount of the decrease in fair market value to take into account Mr. Baker's*143 self-interest in his appraisal of the property's post-casualty fair market value, we find and therefore hold that petitioners have satisfactorily proved that the amount of the casualty loss claimed on their income tax return -- $ 4,896 -- was actually sustained as a direct result of the flood.
We also believe that petitioners have met their burden of proving that the adjusted basis of their home was in excess of the amount of the loss claimed. A taxpayer claiming a casualty loss deduction under section 165(c)(3) must establish the basis of damaged property acquired by inheritance.
As a result of the foregoing, we hold that petitioners are entitled under section 165(c)(3) to a casualty loss deduction, after application of the $ 100 floor, of $ 3,696, which amount includes the $ 650 conceded by respondent as the petitioners' loss of personal property.
* * *
In accordance with the foregoing,
1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated. ↩
2. Pursuant to the order of assignment, on the authority of the "otherwise provided" language of
united-states-v-leland-sowards-and-ruth-sowards-his-wife-sarah-p-gibson , 370 F.2d 87 ( 1966 )
Kinter v. United States , 156 F.2d 5 ( 1946 )
Austin Clapp, Gloria Clapp, Stuart P. Clapp, and Virginia M.... , 321 F.2d 12 ( 1963 )
I. Hal Millsap, Jr., and Frances Millsap v. Commissioner of ... , 387 F.2d 420 ( 1968 )
United States v. Ann E. Lattimore , 353 F.2d 379 ( 1965 )
united-states-v-369863-acres-of-land-more-or-less-situate-in-burleigh , 416 F.2d 65 ( 1969 )
No. 74-1644 , 534 F.2d 337 ( 1976 )
Helvering v. Owens , 59 S. Ct. 260 ( 1939 )
Citrus Soap Co. of California v. Lucas , 42 F.2d 372 ( 1930 )