Dennis, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) which is destroyed by a tornado in October 2017. He receives insurance proceeds of $250,000 in January 2018. If before 2021, Dennis replaces the warehouse with another warehouse costing at least $250,000, he can elect to postpone the recognition of any realized gain.

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This is known as the involuntary conversion rule under Section 1033 of the Internal Revenue Code. If Dennis replaces the warehouse with a similar property within a certain time frame and for a cost equal to or greater than the insurance proceeds, he can defer the recognition of any realized gain.

Dennis, a Calendar Year Taxpayer, Owns a Warehouse (Adjusted Basis