Federal gain on sale of property having a higher New York State basis (see section 612[c][4] of the Tax Law).

(1) Computing the modification for difference in basis. This modification is made by subtracting from Federal adjusted gross income the portion of the gain reported for Federal income tax purposes which is not in excess of the difference in basis.

(2) No modification allowable if property acquired after last effective date of former article 16 of the Tax Law. Where a taxpayer realizes a gain on the sale of property which such taxpayer acquired after the end of the last taxable year under former article 16 of the Tax Law, the modification referred to in this subdivision is not allowed; any such property necessarily has the same basis for both New York State and Federal income tax purposes, regardless of whether the Federal basis represents actual cost of the property or a substituted basis. The end of the last taxable year under former article 16 of the Tax Law means: (i) December 31, 1959, in the case of a taxpayer who reported 1959 income on a calendar-year basis; (ii) December 31, 1959, also, in the case of a taxpayer having a short taxable period ending on that date; and (iii) the last day of any full fiscal year ending in the calendar year 1960 (such as November 30, 1960 in the case of a taxpayer having a fiscal year ending on November 30th).

(3) Income or deductions attributable to 1958. In determining the adjusted basis of any property for New York State personal income tax purposes, any item of income or deduction attributable to the 1958 taxable year must be taken into account as properly includible or deductible for that year, even though the normal New York State personal income tax was cancelled for 1958 so that no New York State personal income tax return may have been filed for that year. For example, deductible depreciation during 1958 must be charged against the property in determining its New York State adjusted basis, even though the taxpayer filed no New York State personal income tax return for 1958.

(4) Separate computation required for each transaction. Where two or more assets are sold at a profit during the same taxable year, and the adjusted basis of each for New York State personal income tax purposes on the last effective date of article 16 of the Tax Law was higher than its Federal basis, the amount to be subtracted from Federal adjusted gross income must be computed separately for each asset sold.

(5) Modification not allowed in certain cases. No modification is to be made where property was disposed of at a loss during the taxable year, even though there was a difference between the New York State and Federal basis at the date of termination of former article 16 of the Tax Law. No modification, adjustment or allowance referred to in this section or any other section is to be made with respect to any New York State capital loss carryover computed under the provisions of former article 16 of the Tax Law. However, any Federal capital loss carryover from years taxable under such article, which is used in computing Federal adjusted gross income in subsequent years, will by virtue of such use be reflected in New York adjusted gross income.

(6) Examples of cases involving different methods of computing depreciation. Under the Internal Revenue Code, accelerated depreciation may be claimed on certain depreciable assets, whereas, under former article 16 of the Tax Law, such accelerated depreciation was not permitted by New York State. As a result, the New York State basis of these depreciable assets under former law was often higher than the Federal basis. The following examples show how to compute the modification for such difference in basis. On January 2, 1992, taxpayer A sold depreciable business property for which A had paid $15,000 on January 2, 1959, and realized a Federal long-term capital gain of $2,000. On A's Federal income tax return for 1992, A had no other capital transactions and hence properly reflected in Federal adjusted gross income the $2,000 gain. The difference between the two bases ($1,500) is not in excess of the long-term capital gain of $2,000, therefore the full $1,500 difference is the amount to be subtracted from Federal adjusted gross income. Assuming the same facts as in example 1, except that the sale of the property resulted in a long-term capital gain of $600. As the difference between the two bases is $1,500, the portion of the gain not in excess of such difference is the full amount of $600, which may be subtracted from Federal adjusted gross income.

(7) Example of cases involving alternate valuation of estate property. A modification of Federal adjusted gross income may be allowable with respect to a gain reported on the sale of property acquired by a bequest, devise or inheritance, as in some instances the New York State basis on the final date of former article 16 of the Tax Law was higher than the Federal basis on the same date. The New York State basis, under former article 16 of the Tax Law, of the property thus acquired was the fair market value at the date of death of the decedent, whereas the Internal Revenue Code has permitted since 1942 (under certain conditions) an alternate valuation of estate property; namely, a valuation of the property as of a date six months after death (one year where death occurs prior to January 1, 1971), or at an intermediate date when the specific property is disposed of during the six months following the date of death of the decedent. Such alternate Federal valuation, when used, represents the Federal basis of the property and is compared with the New York State basis for the purpose of computing the applicable modification referred to in this subdivision. A decedent owned corporate securities which had a fair market value of $100,000 on July 1, 1958, the date of such decedent's death. The securities had a fair market value of $90,000 one year later and the executor of such decedent's estate duly elected to use the lower value at the later date for Federal estate tax purposes. B, a resident individual, received the securities as a bequest from the decedent and sold them in year X for $204,000 realizing a gain of $114,000 for Federal income tax purposes ($204,000 minus $90,000). Since B had no other capital transactions in year X, B would include the full gain of $114,000 in Federal adjusted gross income. The difference between the higher New York State basis and the Federal basis was $10,000 ($100,000 minus $90,000), so that the portion of the gain not in excess of the difference in basis was also $10,000 which may be subtracted from Federal adjusted gross income as a modification in determining New York adjusted gross income. If the sale of these securities occurred in a taxable year beginning on or after January 1, 1972 and before 1982, the modification pursuant to this subdivision would be 60 percent of $10,000, or $6,000. For taxable years beginning prior to 1972, the modification pursuant to this subdivision would be 50 percent of $10,000 or $5,000.

(8) Computation of modification in other cases.

(i) Further situations (other than those mentioned in paragraph [7] of this subdivision) may arise where gains are included in Federal adjusted gross income from disposition of property acquired prior to the effective date of article 22 of the Tax Law. In each of such instances, reference should be made to the applicable provisions of former article 16 of the Tax Law (including sections 353 through 359 thereof) and to the regulations promulgated under former article 16 of the Tax Law (including parts 266 and 267 of such article 16 regulations, which were formerly articles 487 through 493-1 of such article 16 regulations) to establish whether the property disposed of had a higher adjusted basis for New York State personal income tax purposes, on the termination of former article 16 of the Tax Law, than for Federal income tax purposes.

(ii) Taxpayers who own property which they acquired while former article 16 of the Tax Law was in effect, and which had a higher basis for New York State personal income tax purposes than for Federal income tax purposes when article 22 of the Tax Law became effective, should retain such records as may be necessary to establish this difference in basis in order to justify a modification of Federal adjusted gross income if and when such property is sold at a gain at some future time.