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NO BARN, NO BASIS, NO DEDUCTION
March 15, 2005
A tornado ripped through Powesheik County in 1997, destroying a barn owned by Lee F. McClune of Knoxville, Iowa. Mr. McClune salvaged only $2,000 of lumber from the barn, which he valued at $46,000 before the storm, so he took a casualty loss deduction of $44,000.
Only one problem: he bought the barn and 80 acres for only $20,000 in the first place. The IRS said that only the part of his purchase price allocable to the barn, $1,350, was deductible. Yesterday the Tax Court agreed.
The casualty loss rules only allow you to deduct casualty losses to the extent of the lesser of your basis or the value lost. This makes sense - you can't lose more than you paid.
Cite: McClune v. Commissioner, T.C. Memo 2005-47.
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Comments
That doesn't make sense. So he loses not only the capital gain, but also the inflation. What year did he buy it in? If he bought it in the 1970s or earlier, he just got hosed quite substantially.
Posted by: jjayson | March 15, 2005 1:48 PM