To defer the gain on an involuntary conversion, the taxpayer must reinvest the amount of the proceeds from the conversion into replacement property within the prescribed time limit.
In order to defer the gain on an involuntary conversion, the taxpayer must reinvest the amount of the proceeds from the conversion into replacement property within the prescribed time limit.
For example, if a taxpayer sells property due to an involuntary conversion, such as destruction by natural disaster, they can defer the capital gains tax by reinvesting the proceeds into a similar replacement property within the given timeframe.
By doing so, the taxpayer can avoid recognizing the gain and delay paying taxes on it until the replacement property is sold or disposed of.