Problem:
Taxpayers who realize a gain from an involuntary conversion may defer recognition of the gain until a replacement property is purchased. If the taxpayer subsequently elects not to replace the property, how is the deferred gain reported? ANSWER Unselected The gain is reported in the year in which the taxpayer elects not to purchase replacement property as a long-term capital gain. Unselected Since the gain is the result of an involuntary conversion, it does not have to be reported. Unselected The tax return from the year in which the involuntary conversion occurred must be amended. Unselected The gain is reported in the year in which the taxpayer elects not to purchase replacement property as ordinary income.