Section 165(a) states that there shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
Reg. § 1.165-1(b) states the in order to be allowable as a deduction under section 165(a), a loss must be evidenced by closed and completed transactions, fixed by identifiable events. Since Mr. Waters have not sold the house, and has no intention to sell it in the immediate future, there is no complete transaction in this case.
In the case of an individual, §165(c) limited the deduction of loss to three circumstances: (1) losses incurred in a trade or business; (2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and (3) losses …show more content…
Waters’ house was not engaged in trade or business activity, and it did not occur for enter into for profit activity neither. However, Mr. Water might able to argue the loss was due to “other casualty” under §165(c)(3). If he is able to deduct the loss, the calculation of the amount should follow section 165(h)(2)(A). §165(h)(2)(A) states that if the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed only to the extent of the sum of (i) the amount of the personal casualty gains for the taxable year, plus (ii) losses exceed 10 percent of the adjusted gross income of the …show more content…
Dow., 16 TC 1230 reveal that if the loss of the property was temporary, there should not be any deduction allowed. Petitioner G.K. Richardson purchased a house in 1945, it included an artesian well and two cesspools, both of which were connected to the house the petitioner lived. In 1946, Richardson hired a contractor to clean the cesspool, the contractor used certain chemical and refused to tell the petitioner what material he put in the cesspools. The contractor did not make any repairs of the cesspools and he did not do any work on the old well. Four or five weeks after the cesspools were cleaned, the well water turned dark brown, sewage smelled; therefore, inconsumable. Four months later, the report from Massachusetts Department of Public Health indicated that the water was free from pollution and was safe for
Reg. § 1.165-1(b) states the in order to be allowable as a deduction under section 165(a), a loss must be evidenced by closed and completed transactions, fixed by identifiable events. Since Mr. Waters have not sold the house, and has no intention to sell it in the immediate future, there is no complete transaction in this case.
In the case of an individual, §165(c) limited the deduction of loss to three circumstances: (1) losses incurred in a trade or business; (2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and (3) losses …show more content…
Waters’ house was not engaged in trade or business activity, and it did not occur for enter into for profit activity neither. However, Mr. Water might able to argue the loss was due to “other casualty” under §165(c)(3). If he is able to deduct the loss, the calculation of the amount should follow section 165(h)(2)(A). §165(h)(2)(A) states that if the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed only to the extent of the sum of (i) the amount of the personal casualty gains for the taxable year, plus (ii) losses exceed 10 percent of the adjusted gross income of the …show more content…
Dow., 16 TC 1230 reveal that if the loss of the property was temporary, there should not be any deduction allowed. Petitioner G.K. Richardson purchased a house in 1945, it included an artesian well and two cesspools, both of which were connected to the house the petitioner lived. In 1946, Richardson hired a contractor to clean the cesspool, the contractor used certain chemical and refused to tell the petitioner what material he put in the cesspools. The contractor did not make any repairs of the cesspools and he did not do any work on the old well. Four or five weeks after the cesspools were cleaned, the well water turned dark brown, sewage smelled; therefore, inconsumable. Four months later, the report from Massachusetts Department of Public Health indicated that the water was free from pollution and was safe for