IRC Section 1033 is similar in nature to Section 1031, but 1033 exchanges are specifically for involuntary condemnation sales.
Section 1033(a)(2)(B) provides, in general, that the replacement period begins on the earlier of the date of disposition of the converted property or the earliest date of the threat or imminence of requisition or condemnation of the converted property, and ends two years after the close of the first taxable year in which any part of the gain on the conversion is realized.
Section 1.1033(a)-2(c)(1) of the Income Tax Regulations provides:
If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted into money or into property not similar or related in service or use to the converted property, the gain, if any, shall be recognized, at the election of the taxpayer, only to the extent that the amount realized upon such conversion exceeds the cost of other property purchased by the taxpayer which is similar or related in service or use to the property so converted . . . if the taxpayer purchased such other property . . . for the purpose of replacing the property so converted and during the period specified in subparagraph (3) of this paragraph.
Conclusion – you can purchase your replacement property even before you have sold and conveyed your relinquished property in a Section 1033 exchange if you have received a credible threat of seizure, or requisition or condemnation.
Defer Your Gains with a 1031 Transaction
Take advantage of section 1031 of the Internal Revenue Code and defer your gains today with a like-kind exchange of real estate. When you sell a piece of investment real property, typically you need to pay capital gains taxes on the sales proceeds. Depending on your situation, this can be a sizeable tax bill. Many tax-savvy investors use the 1031 exchange to defer this capital gains tax bill and continue to build their wealth in a replacement property. If this piques your interest, contact a qualified intermediary to learn more!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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