In what instances,concerning involuntary conversions,must a taxpayer file an amended tax return (Form 1040X)?
A)When the taxpayer does not buy replacement property within the replacement period.
B)When the replacement property purchased by the taxpayer costs less than the amount realized for the converted property.
C)When the entire amount of the insurance proceeds is used to purchase replacement property.
D)Both when the taxpayer does not buy replacement property within the replacement period and when the replacement property purchased by the taxpayer costs less than the amount realized for the converted property.

Question

Quizplus · Accepted Answer

According to IRS rules, if a taxpayer experiences an involuntary conversion and does not purchase replacement property within the replacement period or purchases replacement property that costs less than the amount realized for the converted property, they must file an amended tax return (Form 1040X). Therefore, the correct answer is D. However, if the entire amount of insurance proceeds is used to purchase replacement property, no Form 1040X is required.

In What Instances,concerning Involuntary Conversions,must a Taxpayer File an Amended