Just would like to review ... Client totaled old truck business use Business basis will be zero after factoring in depreciation. He used std. mileage over the years. He got 10K from the Insurance Co. Is my thinking correct that he can just reduce the basis of his new replacement truck by the amount received from the Ins. Co. Involuntary conversion thing. Or would he have to report the business portion of the gain as current income 4797. Have read thru Tax Book and am not quite clear on this.
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I guess to add he will most likely have a gain to report for the personal use portion. -
Think I am answering my own questions. Now looks like I would just report casualty loss form 4684 deferring gain that way.Comment
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I don't have a good answer for you for lack of experience in this area.
I do have a friendly suggestion though: If you give your post a title related to the problem it might help solicit responses from posters who do have more experience in this.Comment
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I would say it is an involuntary conversion if the truck was destroyed in an accident and insurance money was used to purchase a replacement truck (used for business) within the 2-year replacement period. No gain is reported if the replacement property costs at least as much as the amount realized from the destruction of the old vehicle.Comment
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I was thinking possibly along those lines also but when reading about involuntary conversions they seem to refer to condemnations etc and to real type property.Comment
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In reading on, I see nothing in the code that limits the application of Section 1033 to real property or condemnations. There is a lot to say about condemnations and real property in that code, but that is not the only type of property that qualifies for Section 1033 treatment.§ 1033(a) General rule
If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted [§ 1033(a)(1)] Into property similar or related in service or use to the property so converted, no gain shall be recognized.Last edited by Bees Knees; 02-10-2012, 04:53 PM.Comment
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So no type of entry on return at all as long as he replaced the truck. Other than having to refigure or adjust the basis of the new truck. I guess after 11-12 years of preparing taxes I should know these things but admit I do get confused at times. Really don't run into some situations enough to just zip thru them.Comment
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Mileage method
Basis rarely comes into play if mileage method is used, since the mileage rate includes depreciation. However, in a situation like this, the vehicle does have a "business use" basis, which is the lifetime % business use of the vehicle X its total original cost. This so-called "basis" must then be reduced by a depreciable component of the mileage rate, mostly in the low 20s cent range for last several years (see TTB for historical rates). After this reduction, the vehicle may or may not have any "business" basis left.
The "business" basis would roll into the "basis" of the new vehicle, but the % applied to insurance proceeds would have to be subtracted from the new basis. If new basis is reduced below zero, there is gain.
The personal portion attributable to insurance proceeds is most likely exempt.Comment
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Basis Adjustment
Pub 17, Ch. 13Originally posted by Bees Knees View Post
Similar or related property. If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments.
Decrease the basis by the following.
1. Any loss you recognize on the involuntary conversion.
2. Any money you receive that you do not spend on similar property.
Increase the basis by the following.
1. Any gain you recognize on the involuntary conversion.
2. Any cost of acquiring the replacement property.
For the business side, any insurance received over the cost of the replacement is a gain.Comment
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