An involuntary conversion (or involuntary exchange) occurs when property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and the taxpayer receives other property or money in payment, such as insurance or a condemnation award.
Rules for reporting a gain or loss from an involuntary conversion:
- The property must not be the taxpayer's main home
- The gain or loss is reported on the tax return for the year the gain or loss was realized
- A loss from an involuntary conversion of property held for personal use can only be deducted if the loss resulted from a casualty or theft.
See IRS article Involuntary Conversions - Real Estate Tax Tips for more information.
To enter a 1033 election for an involuntary conversion on an individual or business return
- Go to Input Return ⮕ Other ⮕ Elections.
- Select Election in the top right corner
- Scroll down to the Other Election section.
- Enter Election title and Election text.
To override a gain from an involuntary conversion
- Go to Input Return ⮕ Other ⮕ Dispositions (Sch D/4797/etc)
- Select the Details button for the asset.
- Select Less common scenarios in the upper right.
- Scroll down to the Overrides section.
- Under the section Overrides, enter a -1 in the field Total gain (loss) [Override].