Rev. Rul. 80-65

1980-1 C.B. 183, 1980-10 I.R.B. 10.

                       Internal Revenue Service
                                 Revenue Ruling

              CASUALTY LOSS; CONDEMNATION AWARD; BUSINESS PROPERTY

                           Published: March 10, 1980

26 CFR 1.1033(a)-1: Involuntary conversion; nonrecognition of gain.

(Also Sections 165, 1231; 1.165-1, 1.1231-1.)

  Casualty loss; condemnation award; business property. The application and interaction of sections 1033 and 165 of the Code explained in Rev. Rul. 74-206 with respect to residential property are applicable to property held in a trade of business within the meaning of section 1231(b). Reimbursement attributable to the first $100 of a casualty loss that is not an allowable deduction and that did not give rise to a tax benefit is not includible in gross income. Rev. Rul. 74-206 amplified and clarified.

ISSUE AND FACTS

  The Internal Revenue Service has received inquires as to whether the principles set forth in Rev. Rul. 74-206, 1974-1 C.B. 198, with respect to residential property are applicable to property held in a trade or business within the meaning of section 1231(b) of the Internal Revenue Code.

  Rev. Rul. 74-206 explains the application and interaction of section 1033 of the Code, which relates to the non-recognition of gain resulting from the involuntary conversion of property, and section 165, which relates to the allowance of casualty loss deductions, in a factual situation involving the destruction of a taxpayer's residence by a flood and its subsequent replacement.

HOLDING

  The principles set forth in Rev. Rul. 74-206 with respect to residential property are equally applicable to property held in a trade or business within the meaning of section 1231(b) of the Code.

EFFECT ON OTHER REVENUE RULINGS

  Rev. Rul. 74-206 is amplified.

  Rev. Rul. 74-206 is also clarified to take into account the $100 limitation provided in section 165(c)(3) of the Code on the amount of loss allowable as a deduction with respect to losses of property not connected with a trade or business.  Section 1.165-7(b)(4) of the Income Tax Regulations provides that the deduction allowable for a loss that is sustained in respect of property not used in a trade or business or for income producing purposes from a single casualty shall be limited to that portion of the loss that is in excess of $100, that is, the first $100 is not allowable as a deduction. Therefore, the reimbursement attributable to this amount will not be taken into gross income because it did not give rise to a tax benefit.

Rev. Rul. 80-65, 1980-1 C.B. 183, 1980-10 I.R.B. 10.