Terry D EA Posted April 8, 2014 Report Share Posted April 8, 2014 I posted some questions about this scenario earlier in the year. This client has a multi-family unit that was lost in a fire. He has received a poriton of the funds to rebuild from the insurance company. Here is his question. If he chooses to rebuild, does he have to rebuild on the same lot to avoid any taxable gain? He owns another lot that would be a much better location. We could nothing after alot of research regarding this. He knows he has two years to decide to rebuild and if not then the proceeds are taxable gain but again, we found nothing that says he has to rebuild on the same lot. Any ideas? Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted April 9, 2014 Author Report Share Posted April 9, 2014 Hmmm, I am moving this back to the top to see if I can get any response. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted April 9, 2014 Report Share Posted April 9, 2014 Terry, not the time of year to do research for someone else BUT my gut reaction would be that as long as he is building the same KIND of property that was destroyed, it should not matter that he builds it on a different lot. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 9, 2014 Report Share Posted April 9, 2014 Terry, yes building on different land would qualify for the postponement as long as it is similar in service and use. Building another rental would qualify. Pub 547 has all the details and examples that will help you. In the meantime, here are 2 excerpts that should briefly answer your question: Postponement of Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed or stolen property. Your basis in the new property is generally the same as your adjusted basis in the property it replaces. You must ordinarily report the gain on your stolen or destroyed property if you receive money or unlike property as reimbursement. However, you can choose to postpone reporting the gain if you purchase property that is similar or related in service or use to the stolen or destroyed property within a specified replacement period, discussed later. Replacement Property You must buy replacement property for the specific purpose of replacing your destroyed or stolen property. Property you acquire as a gift or inheritance does not qualify. You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. If you spend the money you receive from the insurance company for other purposes, and borrow money to buy replacement property, you can still postpone reporting the gain if you meet the other requirements. Similar or related in service or use. Replacement property must be similar or related in service or use to the property it replaces. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted April 9, 2014 Author Report Share Posted April 9, 2014 Thanks again Judy you have really been saving my backside this season and I can't tell you enough how I appreciate it. It is nice to be able to bounce these things off of others. I will look at Pub 547 but you confirmed my initial thougts. Gail I agree it is not the time of year to do reasearch and this can wait a bit and I do appreciate you taking time to respond and it appears you were spot on as well. Quote Link to comment Share on other sites More sharing options...
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