$ 1.1034 Title 26 Chapter I cost of purchasing a residence, there shall be included only so much of his cost as is attributable to the acquisition, construction, reconstruction, and improvements made which are properly chargeable to capital account, during the period specified in subsection (a). (3) If a residence is purchased by the taxpayer before the date of his sale of the old residence, the purchased residence shall not be treated as his new residence if sold or otherwise disposed of by him before the date of the sale of the old residence. (4) If the taxpayer, during the period described in subsection (a), purchases more thar one residence which is used by him as his principal residence at some time within 1 year after the date of the sale of the old residence, only the last of such residences so used by him after the date of such sale shall constitute the new residence. (5) In the case of a new residence the construction of which was commenced by the taxpayer before the expiration of one year after the date of the sale of the old residence, the period specified in subsection (a), and the 1 year referred to in paragraph (4) of this subsection, shall be treated as including a period of 18 months beginning with the date of the sale of the old residence. (d) Limitation. Eubsection (a) shall not apply with respect to the sale of the taxpayer's residence if within 1 year before the date of such sale the taxpayer sold at a gain other property used by him as his principal residence, and any part of such gain was not recognized by reason of subsection (a) or section 112 (n) of the Internal Revenue Code of 1939. (e) Basis of new residence. Where the purchase of a new residence results, under subsection (a) or under section 112 (n) of the Internal Revenue Code of 1939, in the nonrecognition of gain on the sale of an old residence, in determining the adjusted basis of the new residence as of any time following the sale of the old residence, the adjustments to basis shall include a reduction by an amount equal to the amount of the gain not so recognized on the sale of the old resi dence. For this purpose, the amount of the gain not so recognized on the sale of the old residence includes only so much of such gain as is not recognized by reason of the cost, up to such time, of purchasing the new residence. (f) Tenant-stockholder in a cooperative housing corporation. For purposes of this section, section 1016 (relating to adjustments to basis), and section 1223 (relating to holding period), references to property used by the taxpayer as his principal residence, and references to the residence of a taxpayer, shall include stock held by a tenant-stockholder (as defined in section 216, relating to deduction for amounts representing taxes and interest paid to a cooperative housing corporation) in a cooperative housing corporation (as defined in such section) if (1) In the case of stock sold, the house or apartment which the taxpayer was entitled to occupy as such stockholder was used by him as his principal residence, and (2) In the case of stock purchased, the taxpayer used as his principal residence the house or apartment which he was entitled to occupy as such stockholder. Husband and wife. If the taxpayer (g) and his spouse, in accordance with regulations which shall be prescribed by the Secretary or his delegate pursuant to section, consent to the application graph (2) of this subsection, then(1) For purposes of this section the this subof para adjusted sales price of adjusted sales price his (A) The taxpayer's old residence is the (of the taxpayer, or of the taxpayer and spouse) of the old residence, and (B) The taxpayer's cost of purchasing the new residence is the cost (to the taxpayer, his spouse, or both) of purchasing the new residence (whether held by the taxpayer, his spouse, or the taxpayer and his spouse); and (2) So much of the gain on the sale of the old residence as is not recognized solely by reason of this subsection, and so much of the adjustment under subsection (e) to the basis of the new residence as results solely from this subsection shall be allocated between the taxpayer and his spouse as provided in such regulations. This subsection shall apply only if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence. In case the taxpayer and his spouse do not consent to the application of paragraph (2) of this subsection then the recognition of gain on the sale of the old residence shall be determined under this section without regard to the rules provided in this subsection. 440 (h) Members of Armed Forces. The running of any period of time specified in subsection (a) or (c) (other than the 1 year referred to in subsection (c) (4)) shall be suspended during any time that the taxpayer (or his spouse if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence) serves on extended active duty with the Armed Forces of the United States after the date of the sale of the old residence and during an induction period (as defined in section 112 (c) (5)) except that any such period of time as so suspended shall not extend beyond the date 4 years after the date of the sale of the old residence. For purposes of this subsection, the term "extended active duty" means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period. (1) Special rule for involuntary conversions- (1) In general. For purposes of this section, the destruction, theft, seizure, requisition, or condemnation of property, or the Title 26-Chapter I the compulsory or involuntary conversion of any real property only if the disposition of the converted property (within the meaning of subsection (a)(2)) occurs after December 31, 1957. (Sec. 1033(g) as added by sec. 46(a), Technical Amendments Act 1958 (72 Stat. 1641)] § 1.1033 (g)-1 Condemnation of real property held for productive use in trade or business or for investment. (a) Special rule in general. This section provides special rules for applying section 1033 with respect to certain dispositions, occurring after December 31, 1957, of real property held either for productive use in trade or business or for investment (not including stock in trade or other property held primarily for sale). For this purpose, disposition means the seizure, requisition, or condemnation (but not destruction) of the converted property, or the sale or exchange of such property under threat or imminence of seizure, requisition, or condemnation. In such cases, for purposes of applying section 1033, the re placement of such property with prop erty of like kind to be held either for productive use in trade or business or for investment shall be treated as property similar or related in service or use to the property so converted. For principles in determining whether the replacement property is property of like kind, see paragraph (b) of § 1.1031(a)–1. (b) Limitation on application of special rule. This section shall not apply to the purchase of stock in the acquisition of control of a corporation described in section 1033 (a) (3) (A). SEC. 1083. Involuntary conversions. * (h) Cross references. (1) For determina tion of the period for which the taxpayer has held property involuntarily converted, see section 1223. (2) For treatment of gains from involuntary conversions as capital gains in certain cases, see section 1231 (a). (3) For exclusion from gross income of certain gain from involuntary conversion of residence of taxpayer who has attained age 65, see section 121. [Sec. 1033 (h) as amended by sec. 46(a), Technical Amendments Act 1958 (72 Stat. 1641); sec. 206(b) (3), Rev. Act 1964 (78 Stat. 40)1 ITD. 6500, 25 F.R. 11910, Nov. 26, 1960, as amended by T.D. 6856, 30 F.R. 13319, Oct. 20, 1965] 439 $ 1.1034 otherwise in § 1.1033 (f)-1 and § 1.1033 (g)-1, the provisions of section 1033 and the regulations thereunder are effective for taxable years beginning after December 31, 1953, and ending after August 16, 1954. § 1.1034 Statutory provisions; sale or exchange of residence. SEC. 1034 Sale or exchange of residence(a) Nonrecognition of gain. If property (in this section called "old residence") used by the taxpayer as his principal residence is sold by him after December 31, 1953, and, within a period beginning 1 year before the date of such sale and ending 1 year after such date, property (in this section called "new residence") is purchased and used by the taxpayer as his principal residence, gain (if any) from such sale shall be recognized only to the extent that the taxpayer's adjusted sales price (as defined in subsection (b)) of the old residence exceeds the taxpayer's cost of purchasing the new residence. In the the (b) Adjusted sale price defined—(1) general. For purposes of this section, term "adjusted sales price" means amount realized, reduced by the aggregate of the expenses for work performed on the old residence in order to assist in its sale. (2) Limitations. The reduction provided in paragraph (1) applies only to expenses(A) For work performed during the 90day period ending on the day on which the contract to sell the old residence is entered into; (B) Which are paid on or before the 30th day after the date of the sale of the old residence; and (C) Which are (1) Not allowable as deductions in computing taxable income under section 63 (a) (defining taxable income), and (11) Not taken into account in computing the amount realized from the sale of the old residence. (3) Effective date. The reduction provided in paragraph (1) applies to expenses for work performed in any taxable year (whether beginning before, on, or after January 1, 1954), but only in the case of a sale or exchange of an old residence which occurs after December 31, 1953. (c) Rules for application of section. For purposes of this section: (1) An exchange by the taxpayer of his residence for other property shall be treated as a sale of such residence, and the acquisition of a residence on the exchange of property shall be treated as a purchase of such residence. (2) A residence any part of which was constructed or reconstructed by the taxpayer shall be treated as purchased by the taxpayer. In determining the taxpayer's § 1.1033(f)−1 Title 26-Chapter I § 1.1033 (f)-1 Sale or exchange of livestock solely on account of drought. (a) The sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes in excess of the number the taxpayer would sell or exchange during the taxable year if he followed his usual business practices shall be treated as an involuntary conversion to which section 1033 and the regulations thereunder are applicable if the sale or exchange of such livestock by the taxpayer is solely on account of drought. Section 1033 (f) and this section shall apply only to sales and exchanges occurring after Deceinber 31. 1955. (b) To qualify under section 1033 (f) and this section, the sale or exchange of the livestock need not take place in a drought area. While it is not necessary that the livestock be held in a drought area, the sale or exchange of the livestock must be solely on account of drought conditions the existence of which affected the water, grazing, or other requirements of the livestock so as to necessitate their sale or exchange. (c) The total sales or exchanges of livestock held for draft, breeding, or dairy purposes occurring in any taxable year which may qualify as an involuntary conversion under section 1033 (f) and this section is limited to the excess of the total number of such livestock sold or exchanged during the taxable year over the number that the taxpayer would have sold or exchanged if he had followed his usual business practices, that is, the number he would have been expected to sell or exchange under ordinary circumstances if there had been no drought. For example, if in the past it has been a taxpayer's practice to sell or exchange annually one-half of his herd of dairy cows, only the number sold or exchanged solely on account of drought conditions which is in excess of one-half of his herd, may qualify as an involuntary conversion under section 1033(f) and this section. (d) The replacement requirements of section 1033 will be satisfied only if the livestock sold or exchanged is replaced within the prescribed period with livestock which is similar or related in service or use to the livestock sold or exchanged because of drought, that is, the new livestock must be functionally the same as the livestock involuntarily converted. This means that the new live 438 stock must be held for the same useful purpose as the old was held. Thus, although dairy cows could be replaced by dairy cows, a taxpayer could not replace draft animals with breeding or dairy animals. (e) The provisions of § 1.1033 (a)-2 shall be applicable in the case of a sale or exchange treated as an involuntary conversion under this section. The details in connection with such a disposition required to be reported under paraof § 1.1033 graph (c) include: (2) (a)-2 shall (1) Evidence of the existence of the drought conditions which forced the sale or exchange of the livestock; (2) A computation of the amount of gain realized on the sale or exchange; (3) The number and kind of livestock sold or exchanged; and (4) The number of livestock of each kind that would have been sold or exchanged under the usual business practice in the absence of the drought. (f) The term "involuntary conversion", where it appears in subtitle A of the Code or the regulations thereunder, includes the sale or exchange of livestock described in this section. (g) The provisions of section 1033 (f) and this section apply to taxable years ending after December 31, 1955, but only in the case of sales or exchange of livestock after December 31, 1955. § 1.1033 (g) Statutory provisions; involuntary conversions; condemnation of real property held for productive use in trade or business or for investment. SEC. 1033. Involuntary conversions. * (g) Condemnation of real property held for productive use in trade or business or for investment-(1) Special rule. For purposes of subsection (a), if real property (not including stock in trade or other property held primarily for sale) held for productive use in trade or business or for investment is (as the result of its seizure, requisition, or condemnation, or threat or imminence thereof) compulsorily or involuntarily converted, property of a like kind to be held either for productive use in trade or business or for investment shall be treated as property similar or related in service or use to the property so converted. (2) Limitations-(A) Purchase of stock. Paragraph (1) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subsection (a) (3) (A). (B) Conversions before January 1, 1958. Paragraph (1) shall apply with respect to Title 26-Chapter I conform to acreage limitations of the Federal reclamation laws effective with respect to such project or division shall be treated as an involuntary conversion to which the provisions of section 1033 and the regulations thereunder shall be applicable. The term "excess lands" means irrigable lands within an irrigation project or division held by one owner in excess of the amount of irrigable land held by such owner entitled to receive water under the Federal reclamation laws applicable to such owner in such project or division. Such excess lands may be either (1) lands receiving no water from the project or division, or (2) lands receiving water only because the owner thereof has executed a valid recordable contract agreeing to sell such lands under terms and conditions satisfactory to the Secretary of the Interior. (b) If a disposition in order to conform to the acreage limitation provisions of Federal reclamation laws includes property other than excess lands (as, for example, where the excess lands alone do not constitute a marketable parcel) the provisions of section 1033 (d) shall apply only to the part of the disposition that relates to excess lands. (c) The provisions of § 1.1033 (a)–2 shall be applicable in the case of dispositions treated as involuntary conversions under this section. The details in connection with such a disposition required to be reported under paragraph (c) (2) of § 1.1033 (a)-2 shall include the authority whereby the lands disposed of are considered "excess lands", as defined in this section, and a statement that such disposition is not part of a plan contemplating the disposition of all or any nonexcess land within the irrigation project or division. (d) The term "involuntary conversion", where it appears in subtitle A of the Code or the regulations thereunder, includes dispositions of excess property within irrigation projects described in this section. (See, e. g., section 1231 and the regulations thereunder.) § 1.1033 (e) Statutory provisions; involuntary conversions; livestock destroyed by disease. $ 1.1033(1) sold or exchanged because of disease, such destruction or such sale or exchange shall be treated as an involuntary conversion to which this section applies. § 1.1033 (e)-1 Destruction or disposition of livestock because of disease. (a) The destruction occurring in a taxable year to which the Internal Revenue Code of 1954 applies, of livestock by, or on account of, disease, or the sale or exchange, in such a year, of livestock because of disease, shall be treated as an involuntary conversion to which the provisions of section 1033 and the regulations thereunder shall be applicable. Livestock which are killed either because they are diseased or because of exposure to disease shall be considered destroyed on account of disease. Livestock which are sold or exchanged because they are diseased or have been exposed to disease, and would not otherwise have been sold or exchanged at that particular time shall be considered sold or exchanged because of disease. (b) The provisions of § 1.1033 (a)-2 shall be applicable in the case of a disposition treated as an involuntary conversion under this section. The details in connection with such a disposition required to be reported under paragraph (c) (2) of § 1.1033 (a)-2 shall include a recital of the evidence that the livestock were destroyed by or on account of disease, or sold or exchanged because of disease. (c) The term "involuntary conversion," where it appears in subtitle A of the Code or the regulations thereunder, includes disposition of livestock described in this section. (See, e. g., section 1231 and the regulations thereunder.) § 1.1033 (f) Statutory provisions; livestock sold on account of drought. SEC. 1033. Involuntary conversion. * ** (1) Livestock sold on account of drought. For purposes of this subtitle, the sale or exchange of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy purposes in excess of the number the taxpayer would sell if he followed his usual business practices shall be treated as an involuntary conversion to which this section applies if such livestock are sold or exchanged by the taxpayer solely on account of drought. [Sec. 1033 (f) as added by sec. 5, Act of June 29, 1956 (Pub. Law 629, 84th Cong., 70 Stat. 40] 437 SEC. 1033. Involuntary conversions. (c) Basis of property acquired through involuntary conversion. If the property was acquired, after February 28, 1913, as the result of a compulsory or involuntary conversion described in subsection (a) (1) or (2), the basis shall be the same as in the case of the property so converted, decreased in the amount of any money received by the taxpayer which was not expended in accordance with the provisions of law (applicable to the year in which such conversion was made) determining the taxable status of the gain or loss upon such conversion, and increased in the amount of gain or decreased in the amount of loss to the taxpayer recognized upon such conversion under the law applicable to the year in which such converThis subsection shall not sion was made. apply in respect of property acquired as a result of a compulsory or involuntary conversion of property used by the taxpayer as his principal residence if the destruction, theft, seizure, requisition, or condemnation of such residence, or the sale or exchange of such residence under threat or imminence thereof, occurred after December 31, 1950, and before January 1, 1954. In the case of property purchased by the taxpayer in a transaction described in subsection (a) (3) which resulted in the nonrecognition of any part of the gain realized as the result of a compulsory or involuntary conversion, the basis shall be the cost of such property decreased in the amount of the gain not so recognized; and if the property purchased consists of more than one piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs. § 1.1033(c)-1 Basis of property acquired as a result of an involuntary conversion. (a) The provisions of the first sentence of section 1033 (c) may be illustrated by the following example: Example. A's vessel which has an adjusted basis of $100,000 is destroyed in 1950 and A receives in 1951 insurance in the amount of $200,000. If A invests $150,000 in a new vessel, taxable gain to the extent of $50,000 would be recognized. The basis of the new vessel is $100,000; that is, the adjusted basis of the old vessel ($100,000) minus the money received by the taxpayer which was not expended in the acquisition of the new vessel ($50,000) plus the amount of gain recognized upon the conversion ($50,000). If any amount in excess of the proceeds of the conversion is expended in the acquisition of the new property, such amount may be added to the basis otherwise determined. (b) The provisions of the last sentence of section 1033 (c) may be illustrated by the following example: Example. A taxpayer realizes $22,000 from the involuntary conversion of his barn in 1955; the adjusted basis of the barn to him was $10,000, and he spent in the same year $20,000 for a new barn which resulted in the nonrecognition of $10,000 of the $12,000 gain on the conversion. The basis of the new barn to the taxpayer would be $10,000—the cost of the new barn ($20,000) less the amount of the gain not recognized on the conversion ($10,000). The basis of the new barn would not be a substituted basis in the hands of the taxpayer within the meaning of section 1016 (b) (2). If the replacement of the converted barn had been made by the purchase of two smaller barns which, together, were similar or related in service or use to the converted barn and which cost $8,000 and $12,000, respectively, then the basis of the two barns would be $4,000 and $6,000, respectively, the total basis of the purchased property ($10,000) allocated in proportion to their respective costs (8,000/ 20,000 of $10,000 or $4,000; and 12,000/20,000 of $10,000, or $6,000). § 1.1033 (d) Statutory provisions; involuntary conversions; property sold pursuant to reclamation laws. SEC. 1033. Involuntary conversions. *** (d) Property sold pursuant to reclamation laws. For purposes of this subtitle, if property lying within an irrigation project is sold or otherwise disposed of in order to conform to the acreage limitation provisions of Federal reclamation laws, such sale or disposition shall be treated as an involuntary conversion to which this section applies. § 1.1033(d)-1 Disposition of excess property within irrigation project deemed to be involuntary conversion. (a) The sale, exchange, or other disposition occurring in a taxable year to which the Internal Revenue Code of 1954 applies, of excess lands lying within an irrigation project or division in order to 436 |