Terry D EA Posted April 1, 2014 Report Share Posted April 1, 2014 One of my clients owns several rental properties and had a total loss of a multi-family building due to a fire. He is thinking about not rebuilding the building and just selling the lot. The building has been depreciated out and the insurance company has given him $115,000 to start to rebuild. The total loss came to 194,000 give or take. If he does take the 115,000.00 and not rebuild then I think this amount is taxable gain due to the fact the building has been completely depreciated. Am I correct here or is there something I am missing. Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 1, 2014 Report Share Posted April 1, 2014 Well he demolished the building and got paid for it, so I guess you will have to reduce the basis on the land. (the same way you add to the basis of the land any cost to demolish the old building if you want to construct again. I honestly think you are right but he has not disposed off the property because he has to sell the land, correct? Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted April 2, 2014 Author Report Share Posted April 2, 2014 I think you are correct as well. He has not disposed of the property yet. But, the land value was separated at the beginning of the depreciation schedule so there may be a gain there as well. Also, there is some remaining depreciation that will come into play when he disposes of it. I still think he will have to report the gain if he chooses not to rebuild regardless of whether he sells the land or not. This is what I need to know. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 2, 2014 Report Share Posted April 2, 2014 Since he has not yet sold the property, no need to recognize it on 2013. When he sells or rebuilds, that's when you recognize the gain. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted April 2, 2014 Author Report Share Posted April 2, 2014 Thanks KC and that is what I thought. The loss occured two weeks ago so this will be looked at for TY2014. He is planning for next year and trying to make a good choice by knowing all the facts. I wish all my clients would do this but then that would be too easy. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 2, 2014 Report Share Posted April 2, 2014 He has 2 years after the close of the year in which the gain occurred to rebuilt the replacement property. Don't forget to attach the required statement with the tax return for the year of the gain to report its deferral. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 2, 2014 Report Share Posted April 2, 2014 Good reminder, Judy, Quote Link to comment Share on other sites More sharing options...
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