Question

In order to fully defer the gain realized on the involuntary conversion of property, the taxpayer must acquire qualifying replacement property costing at least as much as the cost of the original property.

1) True
2) False

Answer 1

To fully defer the gain realized on the involuntary conversion of property, the taxpayer must acquire qualifying replacement property costing at least as much as the cost of the original property.

Step-by-step explanation:

In order to fully defer the gain realized on the involuntary conversion of property, the taxpayer must acquire qualifying replacement property costing at least as much as the cost of the original property.

The statement is true - to qualify for full deferral of gain, the taxpayer must reinvest the entire amount of the proceeds from the involuntary conversion into the qualifying replacement property. The cost of the replacement property should be equal to or greater than the cost of the original property.

For example, if the original property was sold for $200,000, the taxpayer must acquire a qualifying replacement property costing $200,000 or more to completely defer the gain recognized from the sale.