On an involuntary conversion,gain is recognized to the extent of the lower of gain realized or the proceeds not used for replacement.

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This statement is true. In an involuntary conversion, such as the destruction or theft of property, any gain realized must be recognized for tax purposes. However, the gain is only recognized to the extent of the difference between the amount received (such as through insurance proceeds) and the amount reinvested in qualified replacement property. This rule is intended to provide taxpayers with an incentive to replace their lost property rather than simply taking the cash and paying taxes on any gain.

On an Involuntary Conversion,gain Is Recognized to the Extent of the Lower