Involuntary Conversion


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.

BREAKING DOWN '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.

  1. Adjusted Basis

    The proportionate value of an asset or security that reflects ...
  2. Like-Kind Property

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

    The exchange of a convertible type of asset into another type ...
  4. Casualty Insurance

    A broad category of coverage against loss of property, damage ...
  5. Main Home

    A term used by the Internal Revenue Service (IRS) to define the ...
  6. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
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