Involuntary Conversion

AAA

DEFINITION of 'Involuntary Conversion'

A process where a taxpayer is involuntarily forced to dispose of property that has been stolen, condemned, destroyed or repossessed, and another piece of property or cash is received in lieu of the property. Involuntary conversion can result in a possible gain or loss to the taxpayer, as long as the property was not the taxpayer's main home.

No loss can be deducted if the involuntary conversion is a result of casualty or theft.

INVESTOPEDIA EXPLAINS 'Involuntary Conversion'

If the taxpayer receives insurance or other remuneration for lost property that is worth more than the property's adjusted basis (and is not the taxpayers main home), then the difference between the two amounts must be reported as a capital gain. This gain may be deferred if the taxpayer elects to use the proceeds to acquire replacement property that is worth at least as much as the property that was lost.

RELATED TERMS
  1. Conversion

    The exchange of a convertible type of asset into another type ...
  2. Like-Kind Property

    Any two assets or properties that are considered to be the same ...
  3. Replacement Property

    Any property that is received as a replacement for property that ...
  4. Casualty Insurance

    A broad category of coverage against loss of property, damage ...
  5. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
  6. Main Home

    A term used by the Internal Revenue Service (IRS) to define the ...
RELATED FAQS
  1. What are unrealized gains and losses?

    An unrealized loss occurs when a stock decreases after an investor buys it, but he or she has yet to sell it. If a large ... Read Full Answer >>
  2. I sold my house. Can I exclude the gain from my income?

    Generally, you are required to include the gain from the sale of your home in your taxable income. However, if the gain ... Read Full Answer >>
  3. What's the difference between regressive and progressive taxes?

    The U.S. federal tax system and local and state tax systems are complex in that they combine progressive, regressive and ... Read Full Answer >>
  4. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
  5. What are some examples of a value added tax?

    A value-added tax (VAT) is a consumption tax levied on products at every point of sale where value has been added, starting ... Read Full Answer >>
  6. What are common reasons for governments to implement tariffs?

    A tariff is a tax imposed by a governing authority on goods or services entering or leaving the country and is typically ... Read Full Answer >>
Related Articles
  1. Active Trading

    Trade Properties To Keep The Taxman At Bay

    Like-kind exchanges can mean a much lower tax bill on real estate for savvy investors.
  2. Taxes

    Sell Your Rental Property For A Profit

    Being a landlord can be taxing, especially when you want to sell. Find out how to reduce your burden.
  3. Taxes

    Avoid Capital Gains Tax On Your Home Sale

    If you have property to sell and want to avoid capital gains tax, a Section 1031 exchange may be the answer.
  4. Taxes

    Are Taxes the Solution for Income Inequality?

    Income inequality continues to increase. Why? And are taxes the solution?
  5. Taxes

    Presidential Candidates And Wall Street In 2016

    Wall Street's influence will play a large role in the 2016 presidential race. As election season begins, candidates are showing their true colors.
  6. Professionals

    Top Tips for Retirement Account Withdrawals

    Top things you need to know when it comes to managing the complex task of retirement account withdrawals.
  7. Taxes

    Tips on Charitable Contributions: Limits and Taxes

    An overview of the limits and tax deductions of charitable donations.
  8. Taxes

    When Is Dual Citizenship Not A Good Idea?

    It may sound useful, but there are a number of reasons that make dual citizenship a questionable choice.
  9. Retirement

    Retirement: The Journey Of 1000 Miles

    Substantial time should be set aside to fully outline one's vision for retirement and the specific steps that must be taken to realize it.
  10. Taxes

    OK, So I'll Be Smarter Next Tax Time

    5 tax resolutions to start on right now for a smoother tax return next April 15.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center