INVOLUNTARY CONVERSION

[Edward]

Client's generator stolen from tractor. Insur paid 13782 & he purchased new generator at 14,782. Should he defer the

13782 under section 1033, or report it as ordinary income; and therefore only write off the excess basis (1000.00 deductable). What would or could be the advantage of deferring the 13782 as opposed to reporting the insurance as income? He is a 1099-Misc Trucker with taxable income of 53,000. Appreciate any comments.

[RoyDaleOne]

Does not the insurance proceeds reduce the basis of the property?

[Edward]

I didn't include all facts in my previous post. Therefore I'll resubmit: Clients generator stolen from tractor. Insurance

paid 13782 for replacement. Total cost was 13782 plus deductable of 1000 = 14782. Old generator was given 179 so he has zero basis. I have been thinking about reporting the 13782 on 4797 as ord income and then give a 179 deduction for the replacement cost of 14782. What would or could be the advantage of deferring the 13782 under sectin 1033 as opposed to reporting the insurance as ordinary income? T/P is a 1099-misc trucker with taxable income of 53000. Any comments would be appreciated.

[kcjenkins]

Basically, he is just back to where he was, except for the deductible. I see no benefit from reporting the insurance as income then writing off the replacement.

[RoyDaleOne]

SE tax

[Edward]

RoyDaleOne: You're right. I have prepared the return and made comparisons between the two options available (reporting income or deferral). Reporting the insur as income and writing off the replacement did provide the greatest

amount of savings, especially in the SE tax area so I shall submit the return accordingly. Thans!!!