My S-corp had an involuntary conversion from a casualty with a gain from the insurance, for business equipment, which it replaced in 1031 Xchange. How to defer the gain?

[danpeterson61]

I use TT Business for the S-Corp, and TT personal for my individual Return.  I am 100% owner of the S-corp.  S-Corp had a piece of equipment destroyed in a casualty.  Insurance proceeds make it a gain on the casualty.  But the S-corp took the proceeds to buy a replacement item, following 1031 like kind exchange rules.  How does the S-corp defer the gain?  TT Business seems to report the gain to me on my K-1.   Should S-Corp fill in form 8824 instead?  Or does the shareholder (me) need to use 8824 to defer the gain from the K-1?

[LudwigVan_fan · Accepted solution]

This can be a complex area.   Section 1031 apples to real estate, not equipment.  See Section 1033.

If the gain exceeds the cost of the replacement property, then the gain that exceeds the cost is taxable.  

Please review the following to see how this may apply to your situation.

https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-ti...

https://www.law.cornell.edu/uscode/text/26/1033

https://www.law.cornell.edu/cfr/text/26/1.1033(a)-2

Please review Publication 544

https://www.irs.gov/pub/irs-pdf/p544.pdf

Also see: 

https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-ti...

See also instructions for Form 4797

https://www.irs.gov/pub/irs-pdf/i4797.pdf