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new barn ($20,000) less the amount of the gain not
recognized on the conversion * * *[9]
Our conclusion is also reinforced by section 1.1033(a)-2(c)(12),
Income Tax Regs., which states that “An amount expended for
replacement of an asset, in excess of the recovery for loss,
represents a capital expenditure and is not a deductible loss for
income tax purposes.”
When we treat the old warehouse and the new warehouse as
different properties, as sections 165 and 1033 require, the
determination of adjusted basis for purposes of calculating a
casualty loss under section 165(a) is straightforward. The
Boyles’ adjusted basis in the old warehouse for purposes of
9In the notice of deficiency, respondent applied a similar
analysis to calculate the Boyles’ gain from the involuntary
conversion of the old warehouse and the Boyles’ adjusted basis in
the new warehouse in accordance with sec. 1033(a)(2) and (b) as
follows:
Gain realized on the involuntary conversion of
the old warehouse:
Amount realized from the involuntary
conversion of the old warehouse $553,793
Less:
Adjusted basis 33,408
Gain realized 520,385
The Boyles’ adjusted basis in the new warehouse
Total Cost of new warehouse $702,702
Less:
Gain realized but not
recognized under sec.
1033(b) 520,385
Adjusted basis 182,317
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Last modified: May 25, 2011