How to report postponed gain

[taxdan]

Client had total loss of res rental due to fire. He is replacing property with insurance proceeds, so we would like to postpone the gain that is generated from the dispostion of property due to the fire. (Replacement cost is greater than insurance proceeds)

The gain flows from the 4797 to the sch D, but I am not sure where to adjust the gain down to zero. A line item in part 2 of sch D perhaps?

I do know that I have to attach a statement detailing the situation.

Thanks for any help.

[taxdan]

Any thoughts from anyone?

[TaxmannEA]

I don't think that you need to report this as TP is not disposing of the property. He is simply re-building it. You will need to make a basis adjustment on the replacement property however.

[jlewis]

If you add "elections" form to return you will see a tab for dispositions & disaster that should handle the info for you.

[taxdan]

Thanks for the info.

Taxmann, when you receive insurance proceeds from a total fire loss of a rental property and those insurance proceeds produce a gain (mainly due to recaptured depreciation) you have a gain that needs to be reported. You can choose to postpone that gain if you replace the property, which is what the taxpayer is doing.

Jlewis, I found that tab in the elections (actually it was more hidden in the 2008 program which is the year I am working on), but it does not carry the information anywhere. The 4797 and 4684 carry the gain to the Sch D. I'm just not sure of the proper way to back out that gain. Right on the D perhaps? Perhaps on the page 1 of 1040 line 21?

Any thoughts?