Involuntary Conversion

Involuntary Conversion

Involuntary Conversion may have one of the following meanings, depending the context of the term:

1. condemnation, that is, the taking by government of private property for public use, with compensation being paid.

2. the sudden destruction of an asset by nature, as by fire, storm, or sudden insect damage.

With a taxpayer's election, any gain on an involuntary conversion can be deferred for income tax purposes by reinvesting all of the proceeds (within a prescribed time period) in similar or related use or service property. The replacement period is generally 2 years (for business or investment real estate, generally 3 years) after the end of the year of conversion. Former IRC (check if this IRC provision is current here) §1033.

See the entries Income Tax and State Income Tax in the American Encyclopedia of Law.

Description and Definition of Involuntary Conversion

Forced disposition of property due to condemnation, theft, or casualty. In an involuntary conversion you forfeit your asset and receive insurance proceeds or condemnation awards. Tax on gain from involuntary conversions may be deferred if replacement property is purchased.


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