Investment property/capital gains

[Trnr395]

I have a client that owned a house that ended up burning down. They rec'd insurance money to take care of the mortage and the belongings that they lost and later moved. They are going to sell the lot. How do they figure out the cost basis of the lot when they purchased the house. they moved in 2005. Another question he had that somebody had told him is: If he takes the income that he is going to rec'v from this sale and applies it to an existing loan on another investment property he wouldn't have to pay capital gains.

Thanks

[JRS]

1031 Exchange?

[Lion EA]

Was "Somebody" his barber or mechanic?

[michaelmars]

Bernie Madoff!

[jainen]

>>Was "Somebody" his barber or mechanic? <<

It can be helpful to know the context of the advice you are responding to. The original post didn't say when the loss occurred, but the taxpayer probably had at least two years to sell the land and reinvest it under the rules for involuntary conversion. If that wasn't enough time, he could even have requested more.

Most likely the advisor was referring to a Section 1031 exchange, as JRS says, with the exchange proceeds being used for the down payment. That's a very reasonable plan, but it still doesn't answer the question about cost basis. If he doesn't have records of his original acquisition, he must either pay for a retroactive appraisal or declare zero basis.

[RoyDaleOne]

Apparently, this was the taxpayer's residence? Therefore, if there was a gain:

(1) exclude gain to the extent permitted by Code Section 121

(2) elect to defer any remaining gain by acquiring replacement property (including rebuilding) in a manner that satisfies the involuntary conversion provisions of Code Section 1033 and

(3) if gain is deferred under Code Section 1033, treat the period of ownership and use of the newly acquired residence as including periods of use and ownership of the destroyed residence.

You need to allocate the lot amount from the total purchase price.

Normally, the primary residence is not called investment property, therefore, I am reading the rest of the post.