§1359 Disposition of Qualifying Vessels

Summary

A qualifying vessel operator can choose not to report a gain when they sell a qualifying vessel if they buy a replacement qualifying vessel within a certain time. Any amount received from the sale that is more than the cost of the replacement must still be reported. The allowed time starts one year before the sale and ends either 3 years after the end of the first tax year when the gain appears, or later if the Secretary allows that later date after the taxpayer asks. If the operator makes this choice, the IRS gets extra time to audit. The time to assess tax tied to that gain cannot end until 3 years after the operator tells the IRS about the replacement or says they will not replace. The IRS may assess tax during that 3‑year period even if other rules would normally block it. The replacement’s tax basis is the purchase cost minus the gain you did not report; if you buy more than one item, split that basis among them by cost. Qualifying vessel operator — anyone who would be a qualifying vessel operator if they were a corporation.