Property Was Destroyed or Condemned. Can the Gain Be Deferred?
Section 1033 can defer gain when property is involuntarily converted and qualifying replacement requirements are satisfied.
Involuntary conversion
A casualty, theft, condemnation, or similar involuntary event can convert property into insurance proceeds or condemnation proceeds.
Replacement property
Gain deferral can depend on acquiring qualifying replacement property within the applicable replacement period.
Reinvestment
When proceeds are not fully reinvested, some gain can become currently recognized under the applicable rules.
Basis
Deferred gain is generally preserved through basis adjustments in the replacement property.
The takeaway
Calculate realized gain first, then determine how much proceeds were reinvested in qualifying replacement property and whether the statutory timing rules were met.
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FAQ
Does Section 1033 apply to voluntary sales?
Generally no.
Can failure to reinvest all proceeds cause recognized gain?
Yes.
Does deferred gain affect replacement-property basis?
Yes.