Question

Which of the following statements regarding involuntary conversions is incorrect?

A) The taxpayer-use test applies to the involuntary conversion of rental property owned by an investor.
B) The functional-use test is more restrictive than the like-kind test.
C) Real property used in a trade or business that is condemned must be replaced with property which has the same functional use as the converted property.
D) With some exceptions, the replacement property must be similar or related in service or use to the property converted.

Answer 1

The incorrect statement regarding involuntary conversions is option B) The functional-use test is more restrictive than the like-kind test.

Step-by-step explanation:

The incorrect statement regarding involuntary conversions is option B) The functional-use test is more restrictive than the like-kind test.

The functional-use test is used to determine if the converted property is being replaced with property that has the same purpose or function. It is a less restrictive test compared to the like-kind test which looks at the nature or character of the converted property. So option B is incorrect.