Final answer:
Jeffrey must reinvest the $250,000 insurance proceeds in qualified replacement property by December 31, 2022, in order to postpone the gain, as per the typical IRS rules which allow a two-year period for reinvestment after an involuntary conversion.
Step-by-step explanation:
For the scenario described occurring on December 31, 2020, Jeffrey must reinvest the $250,000 insurance proceeds in qualified replacement property by December 31, 2022, to postpone the gain. This is because the Internal Revenue Code typically allows a two-year period from the end of the tax year in which the involuntary conversion occurred. Since the event happened on December 31, 2020, Jeffrey has until two years from the end of 2020 tax year.
It's important to note that different rules may apply for specific types of property or casualty losses, and taxpayers would be wise to consult the relevant IRS publications or a tax professional for guidance. However, for most property subject to such rules, a two-year period for reinvestment is standard.