Although you’ve probably already filed your 2001 tax return, you might want to file an amended return to take advantage of an election choice involving assets. For your 2001 taxes, you may elect to treat any asset owned on January 1, 2001 as if it had been sold for its fair market value on that date and immediately reacquired at that value. Gain, but not loss, will be recognized; going forward, you can benefit from an 18 percent capital gains tax rate for assets held at least five years after 2000.
Some investors may realize immediate benefits. Say you hold fully depreciated investment property. Making this election will enable you to depreciate the property all over again, using the current fair market value to determine the basis for depreciation.
The catch: you would recognize a long term capital gain from the election. Thus, this strategy makes sense if you have large capital losses that you can’t deduct. (Deductions of capital losses are limited to $3,000 per year.) Those losses could offset the gain from the deemed sale and you’d enjoy new depreciation deductions.
