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Casualty Gain/Involuntary Conversion

Technical topics regarding tax preparation.
#1
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17-Nov-2015 5:32pm
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Santa Barbara
I have a question regarding gains realized on homes in disaster areas and involuntary conversions. A client lost a residence in a federally declared disaster area. The following facts apply and the disaster occurred in 2018
Pre Casualty Basis (their adjusted basis): $2,300,000
Decline in FMV: $2,120,000
Insurance Proceeds (other than loss of use and unspecified perso prop) $2,152,647
The client will not rebuild, has already purchased a replacement property for greater value than the insurance proceeds and the county will likely purchase the property from him.

From my calculations I assume that 1) there is no loss because the insurance proceeds are greater than the decline in FMV, 2) there is no gain because the insurance proceeds are less than the adjusted basis. 3) his new basis in the property will be $147,353 (2,300,000 less the uninvested proceeds of 2,152,647))

My question is if the county purchases the property from him in 2020 can he use the involuntary conversion rules under IRC1033 to postpone gain by treating the insurance reimbursement and the subsequent sale as one transaction. Also, does anything have to be attached to the 2018 income tax return or would the attachment (election to postpone gain) only be made on the 2020 return despite the disaster and insurance proceeds received in 2018.
 

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