Page 124 - Virtual Currencies

12:10 - 7-Feb-2023
Page 33 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.
The basis of the replacement low-income The comparison should take into account all of $15,000 fair market value of the replace-
housing property was its $90,000 cost minus the following facts and circumstances. ment machinery bought and $9,000 of the
the $51,600 gain you postponed, or $38,400. • The original cost and reproduction cost of fair market value of other property bought
The $14,932 ordinary gain you did not report is construction, erection, or production. in the transaction. All $16,000 allocated to
treated as additional depreciation on the re- • The remaining economic useful life. the other property disposed of is treated
placement property. If you sold the property in • The state of obsolescence. as consisting of the fair market value of the
2022, your holding period for figuring the appli- • The anticipated expenditures required to other property that was bought.
cable percentage of additional depreciation to maintain, renovate, or modernize the prop- 3. Your potential ordinary income from de-
report as ordinary income will have begun De- erties. preciation is $19,000, the gain on the ma-
cember 2, 1997, the day after you acquired the chinery, because it is less than the
property. Like-kind exchanges and involuntary con- $35,000 depreciation. However, the
versions. If you dispose of and acquire depre-
Example 2. You received a $90,000 fire in- ciable personal property and other property amount you must report as ordinary in-
surance payment for depreciable real property (other than depreciable real property) in an in- come is limited to the $9,000 included in
(office building) with an adjusted basis of voluntary conversion, the amount realized is al- the amount realized for the machinery that
represents the fair market value of prop-
$30,000. You use the whole payment to buy located in the following way. The amount allo-
property similar in use, spending $42,000 for cated to the depreciable personal property erty other than the depreciable property
you bought.
depreciable real property and $48,000 for land. disposed of is treated as consisting of, first, the
You choose to postpone reporting the $60,000 fair market value of the depreciable personal
gain realized on the involuntary conversion. Of property acquired and, second (to the extent of
this gain, $10,000 is ordinary income from addi- any remaining balance), the fair market value of
tional depreciation but is not reported because the other property acquired. The amount alloca-
of the limit for involuntary conversions of depre- ted to the other property disposed of is treated
ciable real property. The basis of the property as consisting of the fair market value of all prop- 4.
bought is $30,000 ($90,000 − $60,000), alloca- erty acquired that has not already been taken
ted as follows. into account.
1. The $42,000 cost of depreciable real prop- If you dispose of and acquire depreciable
erty minus $10,000 ordinary income not real property and other property in a like-kind Reporting Gains
reported is $32,000. exchange or involuntary conversion, the
amount realized is allocated in the following
2. The $48,000 cost of other property (land) way. The amount allocated to each of the three and Losses
plus the $32,000 figured in (1) is $80,000. types of property (depreciable real property, de-
3. The $32,000 figured in (1) divided by the preciable personal property, or other property)
fair market value of that type of property ac- Introduction
$80,000 figured in (2) is 0.4. disposed of is treated as consisting of, first, the
4. The basis of the depreciable real property quired and, second (to the extent of any remain-
is $12,000. This is the $30,000 total basis ing balance), any excess fair market value of This chapter explains how to report capital
gains and losses and ordinary gains and losses
multiplied by the 0.4 figured in (3). the other types of property acquired. If the ex- from sales, exchanges, and other dispositions
5. The basis of the other property (land) is cess fair market value is more than the remain- of property.
$18,000. This is the $30,000 total basis ing balance of the amount realized and is from Although this discussion generally refers to
minus the $12,000 figured in (4). both of the other two types of property, you can Schedule D (Form 1040) and Form 8949, many
apply the unallocated amount in any manner
The ordinary income that is not reported you choose. of the rules discussed here also apply to tax-
payers other than individuals. However, the
($10,000) is carried over as additional deprecia- rules for property held for personal use will usu-
tion to the depreciable real property that was Example. A fire destroyed your property ally not apply to taxpayers other than individu-
bought and may be taxed as ordinary income with a total fair market value of $50,000. It con- als.
on a later disposition. sisted of machinery worth $30,000 and nonde-
preciable property worth $20,000. You received
Multiple Properties an insurance payment of $40,000 and immedi- Topics
This chapter discusses:
ately used it with $10,000 of your own funds (for
a total of $50,000) to buy machinery with a fair
If you dispose of depreciable property and other market value of $15,000 and nondepreciable • Information returns
property in one transaction and realize a gain, property with a fair market value of $35,000. • Schedule D (Form 1040)
you must allocate the amount realized between The adjusted basis of the destroyed machinery • Form 4797
the two types of property in proportion to their was $5,000 and your depreciation on it was • Form 8949
respective fair market values to figure the part $35,000. You choose to postpone reporting
of your gain to be reported as ordinary income your gain from the involuntary conversion. You Useful Items
from depreciation. Different rules may apply to must report $9,000 as ordinary income from de- You may want to see:
the allocation of the amount realized on the sale preciation arising from this transaction, figured
of a business that includes a group of assets. as follows.
See chapter 2. Publication
1. The $40,000 insurance payment must be
In general, if a buyer and seller have ad- allocated between the machinery and the 550 550 Investment Income and Expenses
verse interests as to the allocation of the other property destroyed in proportion to 537 537 Installment Sales
amount realized between the depreciable prop- the fair market value of each. The amount
erty and other property, any arm's-length agree- allocated to the machinery is Form (and Instructions)
ment between them will establish the allocation. $30,000/$50,000 × $40,000, or $24,000.
The amount allocated to the other property Schedule D (Form 1040) Schedule D (Form 1040) Capital Gains
In the absence of an agreement, the alloca- is $20,000/$50,000 × $40,000, or and Losses
tion should be made by taking into account the $16,000. Your gain on the involuntary con-
appropriate facts and circumstances. These in- version of the machinery is $24,000 minus 1099-B 1099-B Proceeds From Broker and Barter
clude, but are not limited to, a comparison be- the $5,000 adjusted basis, or $19,000. Exchange Transactions
tween the depreciable property and all the other 2. The $24,000 allocated to the machinery
property being disposed of in the transaction. disposed of is treated as consisting of the 1099-S 1099-S Proceeds From Real Estate
Transactions
Chapter 4 Reporting Gains and Losses Page 33