INVOLUNTARY CONVERSION

3 replies
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how is a condemned rental property with a gain and replacement rental property purchased in the same year accomplished, I have the assets for the property listed on screen 22 but also screen 17 is used I understand.

Lacerte Tax

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George4TacksAnswer

Level 15

I do not have enough information to confirm you statement the basis of the replacement is zero. What was the basis of the old property. What were the mortgages......

There are several worksheets to do a 1031 Exchange. Use one of them to compute the basis. I LOVE a software program called Tax Tools. I automates that particular worksheet AND it does lots of other nifty tax calculations, including a very easy tax planner. If you can fit it into your budget, it is well worth the investment. Excellent company and very good customer support.

Answers are easy. Questions are hard!

George4Tacks

Level 15

Somewhat like a 1031 exchange. See IRS Pub 544 page 32 ff. You will show the date of the condemnation as a sale date on the old property in Screen 22. You will add a new rental in Screen 18 and you will show a new property with a new adjusted basis in Screen 22. If there is a passive loss and carryover for old rental, leave it there for this year and make a note to delete next year and tie the passive loss from it to the new property.

Compute the gain and report like a sale in Screen 17. I would simply describe as "Involuntary gain on [description of property] and show as a 4797 disposition following the examples in Pub 544.

Answers are easy. Questions are hard!

M

MARK2667Author

Level 2

thank you for your answer, follow up question: the gain on the conversion is around 250,000, so the basis of the replacement property is zero, if I am understanding this. how do I show the new property on screen 22 with this basis for the rental? thanks again.

George4TacksAnswer

Level 15

I do not have enough information to confirm you statement the basis of the replacement is zero. What was the basis of the old property. What were the mortgages......

There are several worksheets to do a 1031 Exchange. Use one of them to compute the basis. I LOVE a software program called Tax Tools. I automates that particular worksheet AND it does lots of other nifty tax calculations, including a very easy tax planner. If you can fit it into your budget, it is well worth the investment. Excellent company and very good customer support.

Answers are easy. Questions are hard!

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