Section 1031 provides the conditions for involuntary conversion of property with the first condition being when the property is destroyed by a destructive event such as fire. Mrs. Lynn indoor soccer arena is completely destroyed by fire, representing an inventory conversion. In such an event, the exchange associated with the conversion will result in either loss or gains on the transaction that attracts transaction at sale. Complete destruction means absolute loss, which is equivalent to the value of the property. Mrs. Smot had valued the indoor soccer arena at $833,400, which represents her loss following the destruction.
Section 1001(a) provides the guideline for gain or loss made from sale or disposition of property, defining it as the amount realized in excess or lower than the adjusted basis of the property. The section defines amount realized as the sum total of all money received and any other fair market value received in noncash form for the property. Mrs. Smot case amount realized is damage claim from an insurance, which can only be realized as capital gains on assets as part of business casualty gain or loss under section 165(f). The settlement amount of $1.1million meant that Lynn realized a gain $266,600 from the involuntary conversion after the fire. …show more content…
Smot indoor soccer arena on April 13 and subsequent payment of $1.1m meant that she could only defer payment by investing in a replacement property considered a like exchange. Purchasing another indoor soccer arena qualifies as a like replacement according to the criteria set in Section 1031. However, purchasing stock of SoccerMagic Inc. does not qualify for exception of tax deferment under 1031. However, according to tax ruling DeCleene v. Commissioner, purchasing all outstanding stock-100 percent stake- in a holding company for the property does give the owner control over the property, which would make the purchase qualify as a like exchange under the same
Section 1001(a) provides the guideline for gain or loss made from sale or disposition of property, defining it as the amount realized in excess or lower than the adjusted basis of the property. The section defines amount realized as the sum total of all money received and any other fair market value received in noncash form for the property. Mrs. Smot case amount realized is damage claim from an insurance, which can only be realized as capital gains on assets as part of business casualty gain or loss under section 165(f). The settlement amount of $1.1million meant that Lynn realized a gain $266,600 from the involuntary conversion after the fire. …show more content…
Smot indoor soccer arena on April 13 and subsequent payment of $1.1m meant that she could only defer payment by investing in a replacement property considered a like exchange. Purchasing another indoor soccer arena qualifies as a like replacement according to the criteria set in Section 1031. However, purchasing stock of SoccerMagic Inc. does not qualify for exception of tax deferment under 1031. However, according to tax ruling DeCleene v. Commissioner, purchasing all outstanding stock-100 percent stake- in a holding company for the property does give the owner control over the property, which would make the purchase qualify as a like exchange under the same