§53510 Tax Treatment of Qualified Withdrawals and Basis of Property

Summary

When someone makes a qualified withdrawal from a capital construction fund, the money is treated as coming first from the capital account, then from the capital gain account, and last from the ordinary income account. If part of a withdrawal used to buy a vessel, barge, or container comes from the ordinary income or capital gain account, the purchase basis of that vessel, barge, or container is reduced by the amount taken from those accounts. If a withdrawal pays loan principal and comes from those accounts, the same basis reductions are applied to the owner’s vessels, barges, and containers in the order set by joint regulations, and any leftover amount is a nonqualified withdrawal. If property with a reduced basis is later sold, any gain up to the amount of the earlier basis reduction is treated as the amount described in section 53511(c)(1) and taxed on the sale date, unless a redeposit restores the fund as far as practicable under rules in the joint regulations.