I have a client who had a rental property he originally purchased 8/25/04 for 78,097 and the land value was 14,193. Depreciable basis is 63,904. The rental home was rented out and depreciated until Feb 2006 as the house burned down. I did not account for the property burning down in 2006. I depreciated as usual. I understand the property is subject to the involuntary conversion rules. I am looking for some guidance on how to report and account for the rental home burning down. The bank gave him 92,000 in Jul 2006 for insurance reimbursement. Total depreciation claimed 3,487.
I calculated as below:
Orignal Price 78,097
Depreciation (3,487)
Adj Basis 74,610
Ins reimb 90,000
Gain 17,390
If I understand correctly the gain can be postponed for two years after the tax year of the property being destroyed. So he would have to rebuild or get replacement property by Dec 31, 2008? What if he builds a new property but it is not done until 09 or 2010? Can he get an extension on the time to rebuild as stated in Taxbook? Does anything need to be reported on 2006? Do we just stop depreciation in Feb 2006? or do we have to show the involuntary conversion on a specific form and then show gain is postponed?
Let's say he builds a new property in 2008 and cost of new property is 120,000. Would I calculate basis as:
Adj basis in old prop 74,610
Insurance Reimb 92,000
New Property 120,000
Basis of new prop 102,610
I appreciate any insight into whether I am thinking straight on this. It is not that often that I come across someone's property being burned down.
Thanks!
GTS1101
I calculated as below:
Orignal Price 78,097
Depreciation (3,487)
Adj Basis 74,610
Ins reimb 90,000
Gain 17,390
If I understand correctly the gain can be postponed for two years after the tax year of the property being destroyed. So he would have to rebuild or get replacement property by Dec 31, 2008? What if he builds a new property but it is not done until 09 or 2010? Can he get an extension on the time to rebuild as stated in Taxbook? Does anything need to be reported on 2006? Do we just stop depreciation in Feb 2006? or do we have to show the involuntary conversion on a specific form and then show gain is postponed?
Let's say he builds a new property in 2008 and cost of new property is 120,000. Would I calculate basis as:
Adj basis in old prop 74,610
Insurance Reimb 92,000
New Property 120,000
Basis of new prop 102,610
I appreciate any insight into whether I am thinking straight on this. It is not that often that I come across someone's property being burned down.
Thanks!
GTS1101