In what instances,concerning involuntary conversions,must a taxpayer file an amended tax return (Form 1040X)?

Question

Quizplus · Accepted Answer

The taxpayer must file an amended tax return (Form 1040X) in both cases - 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. Therefore, the correct choice is D. Option A is incorrect because failure to purchase replacement property within the replacement period results in a recognized gain, which must be reported on the tax return. Option B is incorrect because if the replacement property purchased by the taxpayer costs less than the realized amount, the taxpayer must recognize a portion of the gain, which needs to be reported on Form 1040X. Option C is incorrect because using the entire amount of insurance proceeds to purchase replacement property does not trigger any specific reporting requirement.

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