Client had fire, received insurance proceeds of $25,000. Everything that burned was depreciated out, so all gain. the same year he rebuild the machine shed and purchased a tractor for more than the insurance proceeds. when filling out the 4684, the gain goes to the 4797. How do I adjust that? I know t hat the new bldg. and tractor will be reduced by the ins proceeds, and the leftover amount can be depreciated, but I am not sure how to show and prove?
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also, if he claims the insurance proceeds as income, can the tractor and building be depreciated as normal? or am I required to decrease the value of the replacement property? -
another question - my program takes that insurance reimbursement to 4797 and then Sch D for LT cap gains treatment. Everything that burned had no basis because everything was depreciated out. is this right?Comment
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What you've described is an "involuntary conversion," and if replacement property was acquired within the time proscribed ... two years after the year of the loss ... there is no recognized gain as long as the replacement property cost at lease as much as the proceeds received for the old property. (Code ยง1033)
If your tax prep program is showing a gain, you must be entering something incorrectly.Roland Slugg
"I do what I can."Comment
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so, if I'm replacing property before filing the 2015 income tax return, I just attach a statement about proceeds received and replacement property. Property is costing more that proceeds, so I will have a little to depreciate. No specific form?Comment
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