Dennis,a calendar year taxpayer,owns a warehouse (adjusted basis of $190,000)which is destroyed by a tornado in October 2013.He receives insurance proceeds of $250,000 in January 2014.If before 2017,Dennis replaces the warehouse with another warehouse costing at least $250,000,he can elect to postpone the recognition of any realized gain.

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This is known as the involuntary conversion rule under section 1033 of the Internal Revenue Code. If an asset is destroyed or stolen, and the taxpayer receives insurance proceeds, they can elect to postpone the recognition of any realized gain by replacing the asset within a certain time frame and for at least the amount they received in insurance proceeds. However, if they do not replace the asset or spend the insurance proceeds on a similar item, the realized gain will be recognized and taxed.

Dennis,a Calendar Year Taxpayer,owns a Warehouse (Adjusted Basis of $190,000)which