Frequently Asked Questions
Who is eligible for the Nonrecognition of Gain on Disposition of Qualifying Vessels?
Applies to qualifying vessel operators who reinvest sale proceeds into a replacement qualifying vessel within the statutory replacement period.
How does the Nonrecognition of Gain on Disposition of Qualifying Vessels work?
Allows a vessel operator to elect to defer the recognition of gain on the sale of a qualifying vessel if a replacement vessel is acquired within a specific window (generally 3 years).
What law authorizes the Nonrecognition of Gain on Disposition of Qualifying Vessels?
The Nonrecognition of Gain on Disposition of Qualifying Vessels is authorized under IRC §1359 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §1359
Source: Internal Revenue Code, Title 26, United States Code
§ 1359. Disposition of qualifying vessels(a) In generalIf any qualifying vessel operator sells or disposes of any qualifying vessel in an otherwise taxable transaction, at the election of such operator, no gain shall be recognized if any replacement qualifying vessel is acquired during the period specified in subsection (b), except to the extent that the amount realized upon such sale or disposition exceeds the cost of the replacement qualifying vessel.
(b) Period within which property must be replacedThe period referred to in subsection (a) shall be the period beginning one year prior to the disposition of the qualifying vessel and ending—(1) 3 years after the close of the first taxable year in which the gain is realized, or
(2) subject to such terms and conditions as may be specified by the Secretary, on such later date as the Secretary may designate on application by the taxpayer.
Such application shall be made at such time and in such manner as the Secretary may by regulations prescribe.
(c) Application of section to noncorporate operatorsFor purposes of this section, the term “qualifying vessel operator” includes any person who would be a qualifying vessel operator were such person a corporation.
(d) Time for assessment of deficiency attributable to gainIf a qualifying vessel operator has made the election provided in subsection (a), then—(1) the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain is realized, attributable to such gain shall not expire prior to the expiration of 3 years from the date the Secretary is notified by such operator (in such manner as the Secretary may by regulations prescribe) of the replacement qualifying vessel or of an intention not to replace, and
(2) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of section 6212(c) or the provisions of any other law or rule of law which would otherwise prevent such assessment.
(e) Basis of replacement qualifying vesselIn the case of any replacement qualifying vessel purchased by the qualifying vessel operator which resulted in the nonrecognition of any part of the gain realized as the result of a sale or other disposition of a qualifying vessel, the basis shall be the cost of the replacement qualifying vessel decreased in the amount of the gain not so recognized; and if the property purchased consists of more than one piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs.
(Added Pub. L. 108–357, title II, § 248(a), Oct. 22, 2004, 118 Stat. 1456.)
Statutory Notes and Related Subsidiaries
Effective DateSection applicable to taxable years beginning after Oct. 22, 2004, see section 248(c) of Pub. L. 108–357, set out as an Effective Date of 2004 Amendments note under section 56 of this title.