Which of the following qualify as replacement property under the involuntary conversion rules?
I.Mayfield Ice Cream Company's production plant is destroyed by a hurricane. The insurance proceeds are used to replace the plant with a refrigerated storage container.
II.Mayfield Ice Cream Company's production plant is destroyed by a fire. They sign a five year lease for a replacement production facility, and the insurance proceeds are then used to buy an office building

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Which of the following qualify as replacement property under the involuntary conversion rules?
I.Mayfield Ice Cream Company's production plant is destroyed by a hurricane. The insurance proceeds are used to replace the plant with a refrigerated storage container.
II.Mayfield Ice Cream Company's production plant is destroyed by a fire. They sign a five year lease for a replacement production facility, and the insurance proceeds are then used to buy an office building
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Under the involuntary conversion rules, the replacement property must be similar or related in service or use to the property it replaces. Statement I does not qualify because a refrigerated storage container is not similar in service or use to a production plant. Statement II does not qualify because leasing a facility and using insurance proceeds to buy an office building does not meet the criteria for replacement property, as the purchased office building is not similar or related in service or use to the destroyed production plant.

Which of the Following Qualify as Replacement Property Under the Involuntary