If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is:
A) The cost of the replacement property.
B) The fair market value of the involuntarily converted property minus the postponed gain.
C) The cost of the replacement property minus the postponed gain.
D) The amount realized.
E) None of the above.

Question

Quizplus · Accepted Answer

When the taxpayer qualifies for nonrecognition of gain from an involuntary conversion under § 1033, the basis of the replacement property is equal to the cost of the replacement property reduced by the amount of the postponed gain. Therefore, option C is the correct answer, which states that the basis of the replacement property is the cost of the replacement property minus the postponed gain.

If the Taxpayer Qualifies Under § 1033 (Nonrecognition of Gain