All right, so that's important to realize as far as the calculation.
It says the basis in the new asset will be the basis of the old, which was 200, plus
the liability assumed, plus the gain recognized, minus the liability of the old, minus the
boot received equals 200, so that is going to be the calculation of what we're going
to have.
Notice here its 200, plus 180, minus 180, equals 200.
So that's going to be the basis moving forward, so if they ever ask you, "Hey, what's the
basis?" and we'll do a problem on that a little bit later.
All right, the next item we're looking.
Now here's your journal entry, by the way.
Let's do that journal entry.
Let's see what the journal entry is.
Journal entry is the new liability is 80.
Get rid of the old liability which was 150.
We received some cash of 30.
We got rid of the old for 200 was the book value, carrying value.
We just recognized a gain of 100, so we got a gain, we got the 200, the 80, that's 380.
Here we've got 180.
The difference is the new of 200.
So if you do it this way, it's much easier to figure out the basis of the new.
This is the plug.
I set up a new liability, got rid of the old, got rid of the property.
You recorded the gain that we just recognized, realized, the lower of the two.
How much cash, any other assets you've got.
If they gave you another asset put it here, the difference to plug is this.
All right, it says here "In order to do this all the following conditions, the proceeds
in the sale have to go to an escrow account.
The replacement property has to be identified within 45 days and the replacement property
has to be acquired within 180 days."
All right, next one talks about an involuntary conversion.
It sounds like a religious experience, right.
This is not like when you're walking through the airport.
Remember the old movie "Airplane!"
He says, "Hey Roger, you want to?
Hey, you want to convert to this?
Hey, here's a cookbook, and ba-ba-boop!"
Instead, what it says is you had some property and unfortunately your asset was converted
to cash, and you had nothing to do with it.
What does it mean?
Let's say for example my building, my house blew up, boom!
Right, we had this gas leak here, and boom!
All these houses blew up.
That is where your house was destroyed, or theft of property.
Basically, what's happening is your property was converted to cash, you had nothing to
do with it.
Or, let's say instead I got this beautiful house that I've had for years.
My parents grew up there, my grandparents, my great great grandparents, and so on, but
the government says, "You know what?
We think your home would be a fabulous freeway off-ramp."
All right, so the government condemns my property, eminent domain, the government takes it.
That would be "eminent domain."
Another one would be, let's say, there's this huge hurricane, earthquake, tornado comes
through and the government steps in and says "This is considered "a federal disaster area,"
that would be another situation.
Now here's the deal.
Let's say, for example, this happens and this is called a "1033 exchange" by the way, a
1033, but here's what happens.
They condemn the area or whatever.
There's a property loss, there's a fire, whatever the situation, something happened.
So what happens here is it depends.
So let's say we have this destruction, and I get some money back.
At that point the question is well if I reinvest the money the gain is not taxable, however,
how much time do I have, is really the question.
So I have two years, three years, and four years.
What does that mean?
You have two years, three years, four years, depending on what happened.
If, for example, it was destroyed, it just blew up, or theft, or something like that,
then I have two years to reinvest the money, otherwise, I have a taxable gain.
If instead its eminent domain the government decides yeah, your house makes a good freeway
off-ramp I have three years from then.
If instead it's a federal disaster area, they give me four years.
Four years from when?
From December 31st of the year in which not when the accident happens, but when I get
the cash proceeds, the money, and the dinero.
So if my house blows up in X-1, then I get the money in February of X-2, the clock starts
running December X-2.
So as long as I invest it within two years of X-2, three years of X-2, four years of
X-2, I'm not going to get taxed on the gain.
And here's the concept.
My house blows up they figure within two years you should be able to find a replacement house.
Here they feel guilty they took your house.
We'll give you three.
Here it's a federal disaster.
The whole area was destroyed.
It might take a little longer to find a replacement house, so they give you four years.
So that's two, three, four years from that date.
What about losses?
Losses those will be shown on your Schedule A as a theft or casualty loss subject to what?
10% of AGI minus $100 per event.