Joyce, a farmer, has the following events occur during the tax year.Which of the events qualifies for nonrecognition of gain from an involuntary conversion?
A)Her farm tractor is hauled to the city dump because it is worn out.
B)She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd in preparation for her retirement.
C)Her personal residence, adjusted basis of $100,000, is condemned to make way for an interstate highway.She recovers condemnation proceeds of $175,000.
D)She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd due to a reduction in milk prices.

Question

Quizplus · Accepted Answer

Only option C qualifies for nonrecognition of gain from an involuntary conversion. Involuntary conversions happen when a property is taken away by force, such as condemnation of property. In such cases, the IRS allows non-recognition of any gain that may have been realized from the conversion. Options A and D do not qualify for non-recognition of gain because they are not involuntary conversions. Option B does not qualify for non-recognition of gain because it is a sale at a loss, not a conversion.

Joyce, a Farmer, Has the Following Events Occur During the Tax