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 warehouse used to store inventory can be replaced with an office building to be rented to tenants.
D)Only b.and c.
E)a. ,b. ,and c.

Question

Quizplus · Accepted Answer

Qualified replacement property must meet either the functional use test or the taxpayer use test. The like-kind exchange test is not applicable to § 1033 involuntary conversions.

Option A is incorrect because the functional use test requires that the replacement property be used in the same trade or business and in the same manner as the property being replaced. A warehouse used to store inventory cannot be replaced with a smaller building to be used to sell inventory as the functional use of the property has changed.

Option B is correct under the taxpayer use test, which requires that the replacement property be used as a similar or related asset held for investment or use in a productive trade or business.

Option C is incorrect as mentioned earlier that the like-kind exchange test is not applicable to § 1033 involuntary conversions.

Therefore, Option D is the correct answer as it correctly identifies that only options B and C are applicable and does not include option A, which is incorrect.

Which of the Following Statements Is Correct with Respect to Qualified