Which of the following statements is correct with respect to qualified replacement property in a § 1033 involuntary conversion?
A)If the functional use test applies, a warehouse used to store inventory can be replaced with a smaller building to be used to sell inventory.
B)If the taxpayer use test applies, an office building rented to tenants can be replaced with a shopping mall to be rented to tenants.
C)If the like-kind exchange test applies, a building used by the taxpayer for manufacturing can be replaced with an office building to be used in the taxpayer's business.
D)Only b.and c.
E)a., b., and c.

Question

Quizplus · Accepted Answer

Qualified replacement property must meet the same "use" requirement as the converted property. Under the functional use test, the property must be used in the same line of business or product as the converted property. Therefore, a building used to store inventory cannot be replaced with a building to sell inventory because it is not the same function. The taxpayer use test requires that the taxpayer hold the property for a specific use, and replacement property must be held for the same use. Therefore, an office building rented to tenants can be replaced with a shopping mall to be rented to tenants. Like-kind exchange test applies to exchanges made under § 1031, not to § 1033 involuntary conversions.

Which of the Following Statements Is Correct with Respect to Qualified