What is the term for the conversion of property that is destroyed, stolen, or condemned?

The term for the conversion of property that is destroyed, stolen, or condemned is known as involuntary conversion. This concept refers to situations where a taxpayer loses property against their will, typically due to unforeseen events such as natural disasters, theft, or government action that results in condemnation.

Involuntary conversions involve the exchange of the property for an amount equal to its fair market value, which can have significant tax implications for the owner. When an asset is involuntarily converted, any gain or loss on the disposition is typically determined based on the difference between the adjusted basis of the property and the amount received from the conversion (such as insurance proceeds for stolen or destroyed property).

On the other hand, voluntary conversion would refer to situations where the property owner willingly sells or exchanges the property, which has different tax consequences. Conditional and mandatory exchanges are terms that generally apply to specific transactional scenarios governed by different tax rules, and they are not related to the involuntary loss of property through destruction or theft. This underscores the importance of understanding the definitions and contexts in which these terms are applied in tax law.