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IRS Tax Map 2008
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taxmap/pubs/p544-009.htm#en_us_publink100072468

Rollover of Gain 
From Sale of 
Empowerment Zone Assets(p21)


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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 election described in this section, you postpone part or all of the recognition of your gain.
You can make this election 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#en_us_publink100072469

Qualified empowerment zone asset.(p21)


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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#en_us_publink100072470

Amount of gain recognized.(p21)


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If you make the election described in this section, the gain on the sale is generally recognized only to the extent, if any, that the amount realized on the sale exceeds 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#en_us_publink100072471

Basis of replacement property.(p21)


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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#en_us_publink100072472

More information.(p21)


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For more information about empowerment zones, see Publication 954, Tax Incentives for Distressed Communities. For more information about this rollover of gain, see the Instructions for Form 4797 and Schedule D (Form 1040). Also, see section 1397B of the Internal Revenue Code.