If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:
A) Recognized to the extent of the deficiency (amount realized not reinvested).
B) Recognized to the extent of realized gain.
C) Recognized to the extent of the amount reinvested in excess of the adjusted basis.
D) Permanently not subject to taxation.
E) None of the above.

Question

Quizplus · Accepted Answer

If the taxpayer qualifies for § 1033 nonrecognition and reinvests less than the amount realized, only the deficiency is recognized as gain. Therefore, realized gain is recognized to the extent of the deficiency (amount realized not reinvested).

If the Taxpayer Qualifies Under § 1033 (Nonrecognition of Gain