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. Like-Kind Property

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

    The exchange of a convertible type of asset into another type ...
  3. Adjusted Basis

    The proportionate value of an asset or security that reflects ...
  4. Capital Gain

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

    A broad category of coverage against loss of property, damage ...
  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 >>
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

    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.
  5. Taxes

    What To Do If You Lost Your W-2

    There's no need to panic if you don't have your Form W-2 to file taxes, there are easy ways to gain access to the missing form or file without it.
  6. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  7. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...
  8. Taxes

    The First Thing You Should Do With Your Tax Refund

    Nobody likes to pay taxes, but everyone loves to get a tax refund. When the check arrives in the mail, it's hard to resist spending it on some indulgence.
  9. Taxes

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
  10. Taxes

    What is the Effective Tax Rate?

    The effective tax rate is the average rate at which an individual or corporation is taxed per year.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center