Page 102 - Virtual Currencies

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Replacement property bought before for the year of the gain (individuals file Form on Form 8949 and Schedule D (Form 1040), as
the condemnation. If you buy your replace- 1040-X) in either of the following situations. applicable, even though the loss is not deducti-
ment property after there is a threat of condem- • You do not buy replacement property ble. See the Instructions for Schedule D (Form
nation but before the actual condemnation and within the replacement period. On your 1040) and the Instructions for Form 8949.
you still hold the replacement property at the amended return, you must report the gain
time of the condemnation, you have bought and pay any additional tax due. Business property. Report gain (other than
your replacement property within the replace- • The replacement property you buy costs postponed gain) or loss from a condemnation of
ment period. Property you acquire before there less than the amount realized for the con- property you held for business or profit on Form
is a threat of condemnation does not qualify as demned property (minus the gain you ex- 4797. If you had a gain, you may have to report
replacement property acquired within the re- cluded from income if the property was all or part of it as ordinary income. See
placement period. your main home). On your amended re- Like-kind exchanges and involuntary conver-
turn, you must report the part of the gain sions in chapter 3.
Example. On April 3, 2021, city authorities you cannot postpone reporting and pay
notified you that your property would be con- any additional tax due.
demned. On June 5, 2021, you acquired prop- Nontaxable Exchanges
erty to replace the property to be condemned. Time for assessing a deficiency. Any de-
You still had the new property when the city ficiency for any tax year in which part of the gain Certain exchanges of property are not taxable.
took possession of your old property on Sep- is realized may be assessed at any time before This means any gain from the exchange is not
tember 4, 2022. You have made a replacement the expiration of 3 years from the date you no- recognized, and any loss cannot be deducted.
within the replacement period. tify the IRS director for your area that you have Your gain or loss will not be recognized until
replaced, or intend not to replace, the con-
Extension. You can request an extension demned property within the replacement pe- you sell or otherwise dispose of the property
of the replacement period from the IRS director riod. you receive.
for your area. You should apply before the end
of the replacement period. Your request should Changing your mind. You can change Like-Kind Exchanges
explain in detail why you need an extension. your mind about reporting or postponing the
The IRS will consider a request filed within a gain at any time before the end of the replace- Generally, if you exchange real property you
reasonable time after the replacement period if ment period. If you decide to make an election use in your business or hold for investment
you can show reasonable cause for the delay. after filing the tax return and after making the solely for other business or investment real
An extension of the replacement period will be payment of the tax due for the year or years in property of a like-kind, you do not recognize the
granted if you can show reasonable cause for which any of the gain on the involuntary conver- gain or loss from the exchange. However, if you
not making the replacement within the regular sion is realized, and before the expiration of the also receive non-like-kind property or money as
period. period with which the converted property must part of the exchange, you recognize gain to the
Ordinarily, requests for extensions are gran- be replaced, file a claim for refund for such year extent of the value of the other property or
ted near the end of the replacement period or or years. money you received in the exchange. And, you
the extended replacement period. Extensions do not recognize any loss. In general, your gain
are usually limited to a period of 1 year or less. Example. Your property was condemned or loss will not be recognized until you sell or
The high market value or scarcity of replace- and you had a gain of $5,000. You reported the otherwise dispose of the property you receive in
ment property is not a sufficient reason for gain on your return for the year in which you re- the exchange. See Qualifying Property, later,
granting an extension. If your replacement alized it, and paid the tax due. You buy replace- for details on property that qualify and for ex-
property is being built and you clearly show that ment property within the replacement period. ceptions.
the replacement or restoration cannot be made You used all but $1,000 of the amount realized
within the replacement period, you will be gran- from the condemnation to buy the replacement The exchange of property for the same kind
ted an extension of the period. property. You now change your mind and want of property is the most common type of nontax-
Send your request to the address where you to postpone reporting the $4,000 of gain equal able exchange. To be a like-kind exchange, the
filed your return, addressed as follows. to the amount you spent for the replacement property traded and the property received must
property. You should file a claim for refund on be both of the following.
Extension Request for Replacement Form 1040-X (or other applicable amended re- • Qualifying property.
Period of Involuntarily Converted Property turn). Include a statement explaining that you • Like-kind property.
Area Director previously reported the entire gain from the These two requirements are discussed later.
Attn: Area Technical Services, condemnation, but you now want to report only
Compliance Function the part of the gain equal to the condemnation Additional requirements apply to exchanges
proceeds not spent for replacement property in which the property received as like-kind prop-
Election to postpone gain. Report your elec- ($1,000). erty is not received immediately upon the trans-
tion to postpone reporting your gain, along with fer of the property given up. See Deferred Ex-
all necessary details, on a statement attached Reporting a Condemnation change, later.
to your return for the tax year in which you real- Gain or Loss If the like-kind exchange involves the receipt
ize the gain. of money or unlike property or the assumption
If a partnership or a corporation owns the Generally, you report gain or loss from a con- of your liabilities, see Partially Nontaxable Ex-
condemned property, only the partnership or demnation on your return for the year you real- changes, later.
corporation can elect to postpone reporting the ize the gain or loss.
gain. Personal-use property. Report gain from a If the like-kind exchange involves a portion
Replacement property acquired after re- condemnation of property you held for personal of a MACRS asset and gain is not recognized in
whole or in part, the partial disposition rules in
turn filed. If you buy the replacement property use (other than excluded gain from a condem- Treasury Regulations section 1.168(i)-8 apply.
after you file your return reporting your election nation of your main home or postponed gain) on
to postpone reporting the gain, attach a state- Form 8949 or Schedule D (Form 1040), as ap- Multiple-party transactions. The like-kind ex-
ment to your return for the year in which you plicable. See the Instructions for Form 8949 and change rules also apply to property exchanges
buy the property. The statement should contain the Instructions for Schedule D (Form 1040). that involve three- and four-party transactions.
detailed information on the replacement prop- Do not report loss from a condemnation of Any part of these multiple-party transactions
erty. personal-use property. But, if you received a can qualify as a like-kind exchange if it meets all
Amended return. If you elect to postpone Form 1099-S (for example, showing the pro- the requirements described in this section.
ceeds of a sale of real estate under threat of
reporting gain, you must file an amended return condemnation), you must show the transaction Receipt of title from third party. If you re-
ceive property in a like-kind exchange and the
Chapter 1 Gain or Loss Page 11