R10 - Belk College Of Business

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					Problem                                      efbfa7d1-9068-4bd3-afbf-8ce7098f51f0.xls



Involuntary Conversions 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       FMV                    Cost of         Proceeds                Gain    Gain        Gain       Basis of
             of Old     of Old     Cash            new              Not             (loss)      (loss)      (loss)      New
 Case       Building   Building   Received      Building          Spent           Realized     Deferred   Recognized   Building

  1           70,000    200,000    180,000       230,000


  2           70,000    200,000    180,000       150,000


  3           95,000    115,000    115,000       140,000


  4          100,000     80,000     80,000         70,000




What do you recommend if taxpayer in Case 3 has a $40,000 capital loss carryforward to this year?
Solution                                      efbfa7d1-9068-4bd3-afbf-8ce7098f51f0.xls



 Involuntary Conversions 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       FMV                    Cost of         Proceeds                Gain        Gain        Gain       Basis of
              of Old     of Old     Cash            new              Not             (loss)          (loss)      (loss)      New
 Case        Building   Building   Received      Building          Spent           Realized         Deferred   Recognized   Building

   1           70,000    200,000    180,000       230,000                                110,000     110,000         -       120,000


   2           70,000    200,000    180,000       150,000            30,000              110,000      80,000      30,000      70,000


   3           95,000    115,000    115,000       140,000                  -              20,000      20,000         -       120,000


   4          100,000     80,000     80,000         70,000           10,000              (20,000)         -      (20,000)     70,000




What do you recommend if taxpayer in Case 3 has a $40,000 capital loss carryforward to this year?

				
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