Page 101 - Virtual Currencies

12:10 - 7-Feb-2023
Page 10 of 42
Fileid: … tions/p544/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
rental property, so the two properties are con- 1. Property that is similar or related in service property by acquiring control of a corporation
sidered similar or related in service or use if or use to the condemned property. owning property that is similar or related in serv-
there is a similarity in all of the following areas. 2. Depreciable property not reduced in (1). ice or use.
• Your management activities.
• The amount and kind of services you pro- 3. All other property. Extended replacement period for tax-
vide to your tenants. payers affected by other federally declared
• The nature of your business risks connec- If two or more properties fall in the same class, disasters. If you are affected by a federally de-
ted with the properties. allocate the reduction to each property in pro- clared disaster, the IRS may grant disaster re-
portion to the adjusted basis of all the proper- lief by extending the periods to perform certain
Leasehold replaced with fee simple ties in that class. The reduced basis of any sin- tax-related acts for 2022, including the replace-
property. Fee simple property you will use in gle property cannot be less than zero. ment period, by up to 1 year. For more informa-
your trade or business or for investment can tion, visit IRS.gov/UAC/Tax-Relief-in-Disaster-
qualify as replacement property that is similar or Main home replaced. If your gain from a con- Situations.
related in service or use to a condemned lease- demnation of your main home is more than you
hold if you use it in the same business and for can exclude from your income (see Main home Weather-related sales of livestock in an
the identical purpose as the condemned lease- condemned under Gain or Loss From Condem- area eligible for federal assistance. Gener-
hold. nations, earlier), you can postpone reporting the ally, if the sale or exchange of livestock is due
A fee simple property interest is generally a rest of the gain by buying replacement property to drought, flood, or other weather-related con-
property interest that entitles the owner to the that is similar or related in service or use. The ditions in an area eligible for federal assistance,
entire property with unconditional power to dis- replacement property must cost at least as the replacement period ends 4 years after the
pose of it during his or her lifetime. A leasehold much as the amount realized from the condem- close of the first tax year in which you realize
is property held under a lease, usually for a nation minus the excluded gain. any part of your gain from the sale or exchange.
term of years. You must reduce the basis of your replace- If the weather-related conditions continue
ment property by the postponed gain. Also, if for longer than 3 years, the replacement period
Outdoor advertising display replaced you postpone reporting any part of your gain may be extended on a regional basis until the
with real property. You can elect to treat an under these rules, you are treated as having end of your first drought-free year for the appli-
outdoor advertising display as real property. If owned and used the replacement property as cable region. See Notice 2006-82, 2006-39
you make this election and you replace the dis- your main home for the period you owned and I.R.B. 529, available at IRS.gov/irb/
play with real property in which you hold a dif- used the condemned property as your main 2006-39_IRB/ar11.html.
ferent kind of interest, your replacement prop- home. Each year, the IRS publishes a list of coun-
erty can qualify as like-kind property. For ties, districts, cities, or parishes for which ex-
example, real property bought to replace a de- Example. City authorities condemned your ceptional, extreme, or severe drought was re-
stroyed billboard and leased property on which home that you had used as a personal resi- ported during the preceding 12 months. If you
the billboard was located qualify as property of dence for 5 years prior to the condemnation. qualified for a 4-year replacement period for
a like-kind. The city paid you a condemnation award of livestock sold or exchanged on account of
You can make this election only if you did $400,000. Your adjusted basis in the property drought and your replacement period is sched-
not claim a section 179 deduction for the dis- was $80,000. You realize a gain of $320,000 uled to expire at the end of 2022 (or at the end
play. Also, you cannot cancel this election un- ($400,000 − $80,000). You purchased a new of the tax year that includes August 31, 2022),
less you get the consent of the IRS. home for $100,000. You can exclude $250,000 see Notice 2022-42, 2022-43 I.R.B. 297, availa-
An outdoor advertising display is a sign or of the realized gain from your gross income. ble at IRS.gov/irb/2022-42_IRB#2022-43. The
device rigidly assembled and permanently at- The amount realized is then treated as being replacement period will be extended under No-
tached to the ground, a building, or any other $150,000 ($400,000 − $250,000) and the gain tice 2006-82 if the applicable region is on the
permanent structure used to display a commer- realized is $70,000 ($150,000 amount realized list included in Notice 2022-43.
cial or other advertisement to the public. − $80,000 adjusted basis). You must recognize Determining when gain is realized. If you
Substituting replacement property. $50,000 of the gain ($150,000 amount realized are a cash basis taxpayer, you realize gain
Once you designate certain property as re- − $100,000 cost of new home). The remaining when you receive payments that are more than
placement property on your tax return, you can- $20,000 of realized gain is postponed. Your ba- your basis in the property. If the condemning
not substitute other qualified property. But, if sis in the new home is $80,000 ($100,000 cost authority makes deposits with the court, you re-
your previously designated replacement prop- − $20,000 gain postponed). alize gain when you withdraw (or have the right
erty does not qualify, you can substitute quali- to withdraw) amounts that are more than your
fied property if you acquire it within the replace- Replacement period. To postpone reporting basis.
ment period. your gain from a condemnation, you must buy This applies even if the amounts received
replacement property within a certain period of are only partial or advance payments and the
Controlling interest in a corporation. You time. This is the replacement period. full award has not yet been determined. A re-
can replace property by acquiring a controlling The replacement period for a condemnation placement will be too late if you wait for a final
interest in a corporation that owns property sim- begins on the earlier of the following dates. determination that does not take place in the
ilar or related in service or use to your con- • The date on which you disposed of the applicable replacement period after you first re-
demned property. You have controlling interest condemned property. alize gain.
if you own stock having at least 80% of the • The date on which the threat of condemna- For accrual basis taxpayers, gain (if any) ac-
combined voting power of all classes of stock tion began. crues in the earlier year when either of the fol-
entitled to vote and at least 80% of the total The replacement period generally ends 2 lowing occurs.
number of shares of all other classes of stock of years after the end of the first tax year in which • All events have occurred that fix the right to
the corporation. any part of the gain on the condemnation is re- the condemnation award and the amount
Basis adjustment to corporation's prop- alized. However, see the exceptions below. can be determined with reasonable accu-
racy.
erty. The basis of property held by the corpora- Three-year replacement period for cer- • All or part of the award is actually or con-
tion at the time you acquired control must be re- tain property. If real property held for use in a structively received.
duced by your postponed gain, if any. You are trade or business or for investment (not includ-
not required to reduce the adjusted basis of the ing property held primarily for sale) is con- For example, if you have an absolute right to a
corporation's properties below your adjusted demned, the replacement period ends 3 years part of a condemnation award when it is depos-
basis in the corporation's stock (determined af- after the end of the first tax year in which any ited with the court, the amount deposited ac-
ter reduction by your postponed gain). part of the gain on the condemnation is real- crues in the year the deposit is made even
Allocate this reduction to the following ized. However, this 3-year replacement period though the full amount of the award is still con-
classes of property in the order shown below. cannot be used if you replace the condemned tested.

Page 10 Chapter 1 Gain or Loss