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Postponing reporting gain from disposition rental property for 1033 exchange

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Level 3

Can anyone help?

Rental property partially demanged by fire, received insurance payment , fixed partially then sold in 2019.   Purchasing a qualified property in 2020 to be qualify 1033 exchange.

Follow pub 544 to postpone gain in 2019 by attaching election statement.

 

Do I need to do dispositoin of the asset (but suspend the gain, IF YES, how to suspend in PCO system?) 

If do not dispose the asset, how to stop deprefciation for the current year? Overwrite? 

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Level 15
Level 15

The 1033 involuntary conversion lets you defer the gain so you can rebuild and use the insurance money to rebuild the property nd not have to pay tax on it.

A 1031 exchange separate....are you saying you repaired the property and are now doing a 1031 exchange with that same property?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

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Level 15
Level 15

The 1033 involuntary conversion lets you defer the gain so you can rebuild and use the insurance money to rebuild the property nd not have to pay tax on it.

A 1031 exchange separate....are you saying you repaired the property and are now doing a 1031 exchange with that same property?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

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Level 3
Level 3

I'm not sure your facts fall within the confines of Section 1033.  

Based on the facts presented, you have a partial destruction and your gain is the result of a sale and not insurance proceeds.

You should take a look at C.G. Willis v Commissioner.  Here the Tax Court found that the choice between sale and repair of the damaged vessel was based on the taxpayer's preference for the replacement vessel.   In this case, because the taxpayer in Willis was not forced to obtain replacement property, but only preferred it, the statutory requirement that property be “compulsorily or involuntarily” converted was not met, the court reasoned. 

Your facts appear to be very similar and in order to obtain any deferral, you most likely need to meet the rules of Section 1031.

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Level 3

Good point, unfortunately the purchase was exceed the 180 days exchange period, thus not qualify for 1031 exchange. The gain was result from combination of the sales plus insurance.

Wether or not qualify for 1033 is another question need be further searched.

But for postponing gain for 1033 exchange, how do you report the disposition but not report gain in 2019 in PCO?

thanks!

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Level 3

Hi Rick,

Thanks!  More than likely it is disqualifying.

Dispite the factor of the 1033 qualification.

Assumed if elect to deferring gain for 1033 exchange, in the year of disposition, how do you report the asset and depreciation?

Dispose the asset and have PCO calculate the last year depreciation then undo the disposition and overrite the depreciation calculated from PCO?

 

Anyone can responde that? 

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