1033 Condemnation/Exchange in ProSeries

[sef6476]

Hello,

A commerical building and land was condemned by the state in 2023.  Taxpayer is trying to locate a property to purchase with the money from the condemnation, but hasn't found one yet.  I know the gain is deferred until a new property is purchased, but how do I reflect 0 gain on the 2023 tax return?

Thank you!

[sjrcpa]

By not reporting the proceeds.

[Just-Lisa-Now-]

I had one of these back in 2017? I think I pushed it in and out with manual entries on the 4797, showed the disposal/gain then deferred it on the line beneath it showing the 1033 deferral as the description.

Just so if anyone ever looks back at that year's return they can see that's when it happened.

[sef6476]

Do I not need to report the disposition at all?  or just override the gain to 0?  There is no where to add "Deferred Gain per IRC 1033".  When I remove the assets from ProSeries, a gain is automatically calculated on 4797 and it will look fishy if I just override the gain with 0.

[sef6476]

I also received a 1099-S with the proceeds on it.  I can't just ignore that.

[Just-Lisa-Now-]

You can make a manual entry on the 4797 that offsets the gain that's showing.

[dascpa]

I did one a few years ago and it was recommended to me to attach a note (not that it would be read but it's documented).  My note follows:

Taxpayer incurred an involuntary conversion on 05/30/2016 with the insurance settlement occurring on 08/15/2017. The taxpayer has made a deemed 1033 election to defer any potential gain until replacement property is purchased or constructed.

[sef6476]

Thank you for helping.  By making a manual entry, do you just mean to 0 out the gain?

[sef6476]

Did you show the gain, but then 0 it out below on the 4797?

[Just-Lisa-Now-]

Theres a place on the 4797 that you can make a manual entry...below the line showing the gain, I put a reversing entry that said 1033 gain deferral and wiped it out.

I cant remember the client name or Id go back and look at it again, but the very top of the 4797 in that smart worksheet, you can type in a manual entry.

[sef6476]

Thank you all.

[BobKamman]

When all else fails, try to follow the instructions in Pub 544.

"Election to postpone gain. Report your election to postpone reporting your gain, along with all necessary details, on a statement attached to your return for the tax year in which you realize the gain."

Don't play the "trick the IRS computer" game. Why do people think it's acceptable to sign returns with fantasy numbers?  Don't zero out anything on a 4797.  You're probably going to have to file an amended return eventually, anyway.  Probably, by the time the 1099-S gets matched to the return.  

[Just-Lisa-Now-]

why would an amended return need to be filed?

[dascpa]

You have to file an amended return to reconcile the deferred gain to the actual gain and to report the basis of the replacement property.

[sef6476]

I think you do that on the election form on the return for the year you purchase the replacement property.