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Taxmap/pubs/p544-009.htm#TXMP7dda6f51 Rollover of Gain   From Sale of   Empowerment Zone Assets

Rollover of Gain

You may qualify for a tax-free rollover of certain gains from the sale of qualified empowerment zone assets. This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of the recognition of your gain.

You can make this choice if you meet all the following tests.

1. You hold a qualified empowerment zone asset for more than 1 year and sell it at a gain.
2. Your gain from the sale is a capital gain.
3. During the 60-day period beginning on the date of the sale, you buy a replacement qualified empowerment zone asset in the same zone as the asset sold.

Any part of the gain that is ordinary income cannot be postponed and must be recognized.

Taxmap/pubs/p544-009.htm#TXMP5d8d8c71 Qualified empowerment zone asset.

This means certain stock or partnership interests in an enterprise zone business. It also includes certain tangible property used in an enterprise zone business. You must have acquired the asset after December 21, 2000.

Taxmap/pubs/p544-009.htm#TXMP061c8af0 Amount of gain recognized.

If you make the choice described in this section, you must recognize gain only up to the following amount:

1. The amount realized on the sale, minus
2. The cost of the qualified empowerment zone asset that you bought during the 60-day period beginning on the date of sale (and did not previously take into account in rolling over gain on an earlier sale of qualified empowerment zone assets).

If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. If this amount is less than the amount of your gain, you can postpone the rest of your gain by adjusting the basis of your replacement property as described next.

Taxmap/pubs/p544-009.htm#TXMP6e14f559 Basis of replacement property.

You must subtract the amount of postponed gain from the basis of the qualified empowerment zone assets you bought as replacement property.

Taxmap/pubs/p544-009.htm#TXMP53ef4de4 More information.

For more information about empowerment zones, see Publication 954, Tax Incentives for Distressed Communities. For more information about this rollover of gain, see section 1397B of the Internal Revenue Code.

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