Conversions Problem
9e1972bd0279a1ce2fdb2876124eee6e8efb2860.xls
Involuntary under Section 1033.
Property taken by city under eminent domain. Or property is destroyed by fire and is covered by insurance. Deferral of Gain: Section 1033(a)(2)(A). Basis of New Asset: Section 1033(b). Good Basis Examples: Reg. 1.1033(b)-1 Deferral under Section 1033 applies only to Gains [not Losses]. Deferral under Section 1033 must be elected - it is optional. Sec. 1033 is not applicable to losses. They are deductible under Section 165. Under Sec. 1033, Gain Realized is recognized to extent proceeds from conversion [insurance, government payments, etc.] are not spent on replacement property. [Reg. 1.1033(a)-2(c)] Gain recognized cannot exceed gain realized Gain realized, but not recognized is referred to as "Deferred Gain." Basis of replacement property is its cost, less deferred gain. [Reg. 1.1033(b)-1(b)]
Basis of Old
Case
FMV of Old Building 200,000 200,000 115,000 80,000 Cash Received 180,000 180,000 115,000 80,000
Cost of new Building 230,000 150,000 140,000 70,000
Proceeds Not Spent
Gain (loss) Realized
Gain (loss) Deferred
Gain (loss)
Recognized
Basis of New Building
Building 70,000 70,000 95,000 100,000
1 2 3 4
What do you recommend if taxpayer in Case 3 has a $40,000 capital loss carryforward to this year?
Solution
9e1972bd0279a1ce2fdb2876124eee6e8efb2860.xls
Involuntary under Conversions Section 1033.
Property taken by city under eminent domain. Or property is destroyed by fire and is covered by insurance. Deferral of Gain: Section 1033(a)(2)(A). Basis of New Asset: Section 1033(b). Good Basis Examples: Reg. 1.1033(b)-1 Deferral under Section 1033 applies only to Gains [not Losses]. Deferral under Section 1033 must be elected - it is optional. Sec. 1033 is not applicable to losses. They are deductible under Section 165. Under Sec. 1033, Gain Realized is recognized to extent proceeds from conversion [insurance, government payments, etc.] are not spent on replacement property. [Reg. 1.1033(a)-2(c)] Gain recognized cannot exceed gain realized Gain realized, but not recognized is referred to as "Deferred Gain." Basis of replacement property is its cost, less deferred gain. [Reg. 1.1033(b)-1(b)]
Basis of Old
Case
FMV of Old Building 200,000 200,000 115,000 80,000 Cash Received 180,000 180,000 115,000 80,000
Cost of new Building 230,000 150,000 140,000 70,000
Proceeds Not Spent
Gain (loss) Realized 110,000
Gain (loss) Deferred 110,000 80,000 20,000 -
Gain (loss)
Recognized
Basis of New Building 120,000 70,000 120,000 70,000
Building 70,000 70,000 95,000 100,000
1 2 3 4
30,000 (20,000)
30,000 10,000
110,000 20,000 (20,000)
What do you recommend if taxpayer in Case 3 has a $40,000 capital loss carryforward to this year?