§1359 Disposition of Qualifying Vessels

Summary

You can choose not to report profit when you sell a qualifying vessel if you buy another qualifying vessel within a set time. That time starts one year before you sell and ends either three years after the end of the first tax year when you report the gain or on a later date the IRS allows if you apply under the rules it sets. The rule also applies to people who are not corporations as if they were corporations. If you make that choice, the IRS has at least three years after you tell them you replaced the vessel (or that you will not) to assess any tax from that deferred gain, and it can assess during that three-year window even if other rules might block it. Your tax basis in the replacement vessel equals its cost minus the part of the gain you did not report. If you buy more than one item, split that basis among them by their costs.