An office building owned by Milo was destroyed by Hurricane Mel on September 25,
ID: 3123026 • Letter: A
Question
An office building owned by Milo was destroyed by Hurricane Mel on September 25, 20X14. On October 2, 20X14 the President of the United States declared the area where the office building was located a federal disaster area. Milo received a settlement of his insurance claim for the destruction of his building on January 2, 20X13. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Milo to acquire qualified replacement property?
a. dec. 31, 20X18
b. oct. 2, 20X18
c. dec. 31, 20X19
d. jan. 2, 20X19
Explanation / Answer
Option C.
In order to avoid being taxed on a gain resulting from an involuntary conversion, the property subject to the conversion must be replaced within a specified time, measured from the end of the calendar year in which the proceeds are received. In general, the period is 2 years, but it is 3 years when the involuntary conversion results from government condemnation or eminent domain and is extended to 4 years when the loss is in connection with a declared federal disaster area. Since Milo received the recovery on January 2, 20X15, the property would have to be replaced within 4 years from the end of 20X15 or by December 31, 20X19.