Capital Gains Deferral on Rental Property Casuality Loss

[Anonymous]

If you elect to defer gain by purchasing qualified replacement property, you won't have to transfer the gain to Schedule D, but you must attach a statement to your tax return explaining the date and details of the casualty or theft, the amount of insurance, how you figured the gain, and that you are choosing to postpone gain by purchasing replacement property.

If you've already done the replacing, include information about the property, the postponed gain, the basis adjustment that reflects the postponed gain, and any remaining (unpostponed gain) you are reporting on Schedule D. If you make the replacement in a later year, attach a statement including this information about the replacement property to the tax return for that later year. If you expected to replace property but then didn't, or replaced at less than the full amount, you'll have to go back and amend your tax return for the year you claimed the loss.

[ElderJames]

Do I use a special IRS Form like

irc

section 1033 for the deferral statement?  How do I handle Schedule E for the rental property?  Do I just show I removed it from service?  Thanks!

[Carl]

Can you give me details on situation? I have several write-ups for different "casualty loss" situations with rental properties. If one of my write-ups applies to your specific and explicit situation, I"ll post it here for you.

I need details such as:

date of loss
total loss or partial loss?

Loss from what? Fire? Hurricane? Tornado? Some other natural disaster?

Did you rebuild? Or maybe you sold what was left (I would presume only the land) and purchased a completely new property with insurance proceeds?

Did insurance pay out? If so, what date was the payout?

Did the payout exceed, meet, or was less than your actual cost to get back to being a landlord again?

Again, I have several write-ups for different situations, and if one of them matches yours then I can post it for you.

[ElderJames]

A single family rental unit was totally destroyed by fire on 1/21/2019.  The insurance declared it a total loss and paid the fully insured undepreciated replacement cost of $62,804 on  1/25/2019. The demolition and cleanup cost estimate was more than the value of the lot and I traded the lot for the cleanup.   The FMV prior to the fire was about $55,000 to $60,000.  My total cost basis was $14,623 including the land cost basis of $1,000.  I want to determine the cost of  my options of paying capital gain taxes this year verses deferring the gain and replacing the destroyed property with like-kind rental property.  If I defer, how do I report the deferral?  What forms should I use to report the causality loss and notify IRS that I'm deferring the gain.  How do I report or remove the destroyed property on Schedule E?  What form do I use to report deferral to the IRS?  

Thanks for you help.

[AmyC]

IRS pub 527 page 2 says:

under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. To do this, you must generally buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized.

Publication 547 (2019), Casualties, Disasters, and Thefts ... includes

How To Postpone a Gain

• Required statement.
• Replacement property acquired before return filed.
• Replacement property acquired after return filed.
• Substituting replacement property.
• Amended return.
• Three-year limit.
• Changing your mind.

How To Report Gains and Losses

• Business and income-producing property. - this will tell you if you should use the 4797 or 4684.