- 11 -
related in service or use to the converted property, section
1033(a)(2)(A)) within the period provided in section
1033(a)(2)(B), gain is recognized, if the taxpayer so elects,
only to the extent the amount realized from the involuntary
conversion of the converted property exceeds the cost of the
qualified replacement property.8 Sec. 1033(a)(2)(A). The basis
of the replacement property acquired as a result of an
involuntary conversion of the property into money is its cost,
decreased by the amount of gain not recognized upon conversion.
Sec. 1033(b).
An example used in section 1.1033(b)-1(b), Income Tax Regs.,
to illustrate the operation of section 1033(a)(2)(A) and (b) is
consistent with our analysis:
Example. A taxpayer realizes $22,000 from the
involuntary conversion of his barn in 1955; the
adjusted basis of the barn to him was $10,000, and he
spent in the same year $20,000 for a new barn which
resulted in the nonrecognition of $10,000 of the
$12,000 gain on the conversion. The basis of the new
barn to the taxpayer would be $10,000–-the cost of the
8When an involuntary conversion results in the realization
of gain, the details of the involuntary conversion, including
those relating to the replacement of the converted property, must
be reported in the return for the taxable year in which any of
the gain is realized. An election to defer the recognition of
gain from the conversion under sec. 1033(a)(2) and sec.
1.1033(a)-2(c)(1), Income Tax Regs., is made by including such
gain in gross income, but only to the extent required by sec.
1033, on the taxpayer’s Federal income tax return for the first
year the taxpayer is required to recognize the gain. Sec.
1.1033(a)-2(c)(2), Income Tax Regs. If sec. 1033 does not
require a taxpayer to recognize any of the gain, the election is
made simply by not including the gain in gross income.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011