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. Adjusted Basis

    The proportionate value of an asset or security that reflects ...
  2. Conversion

    The exchange of a convertible type of asset into another type ...
  3. Requisitioned Property

    Property that is involuntarily seized by a governmental authority ...
  4. Replacement Property

    Any property that is received as a replacement for property that ...
  5. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  6. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
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. Can I get a tax credit from conducting research and development?

    It is possible for a company to qualify for a research and development tax credit for conducting research and development. ... Read Full Answer >>
  4. What are some tactics businesses can use to increase unlevered free cash flow?

    Unlevered free cash flow is defined as earnings before interest taxes, depreciation and amortization (EBITDA) less capital ... Read Full Answer >>
  5. What is the government's role and what is the private sector's role in neoliberalism?

    Neoliberalist economic theory supports minimization of government intervention and laissez-faire policy. Neoliberalism is ... Read Full Answer >>
  6. What tax implications are there for parties involved with a reverse repurchase agreement?

    A reverse repurchase agreement – sometimes referred to as a reverse repo – is the purchase of an asset with a simultaneous ... 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

    Have Household Help? Don't Get In Tax Trouble

    Hiring household workers can be a complicated process. Know what the government requires so you can prevent penalties and problems down the road.
  5. Taxes

    Estate Planning for a Surviving Spouse

    Estate planning for surviving spouses can be difficult for a number of reasons, so it's important to have good support and financial advice.
  6. Professionals

    Gay Marriage Ruling: Its Impact on Estate Planning

    Same-sex couples now face the same legal and financial issues as heterosexual couples; some may need to adopt simpler, more mainstream financial plans.
  7. Professionals

    How to Best Navigate Taxes in Retirement

    Here's a rundown on tax strategies that can help extend the life of a nest egg.
  8. Taxes

    What is an Ad Valorem Tax?

    An ad valorem tax is a levy placed on real or personal property based on the assessed value of that property.
  9. Taxes

    10 Little Known Ways To Reduce Your 401(k) Taxes

    These clever strategies will help you hold onto your money – so you'll have more available for your retirement.
  10. Entrepreneurship

    Corporate Inversion: How It Works

    Large corporations are making all kinds of moves to decrease expenses and increase profits in an increasingly competitive global market.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!