Grantly Seafood is a calendar year taxpayer. In 2013, a hurricane destroyed three of Grantly's fishing boats with a $784,500 aggregate adjusted tax basis. On October 12, 2013, Grantly received a $1.2 million reimbursement from its insurance company. What is the latest date that Grantly can replace the boats to avoid gain recognition from the involuntary conversion?

Question

Quizplus · Accepted Answer

Under the rules for involuntary conversions, if a taxpayer receives insurance proceeds as reimbursement for property that was involuntarily converted, the taxpayer generally has two years from the close of the first taxable year in which any part of the gain upon the conversion is realized to replace the property with similar property. Since Grantly received the insurance reimbursement in 2013, the latest date to replace the boats to avoid gain recognition is December 31, 2015. Therefore, the best choice is C.

Grantly Seafood Is a Calendar Year Taxpayer