1033 Exchanges

Section 1033 of the Internal Revenue Code is specifically designed to give relief to property owners who have lost land through an “involuntary conversion”. A qualifying involuntary conversion occurs when a property or a portion of one is destroyed, stolen, or condemned, or disposed of under the threat of condemnation, and other property or money is received in payment.

States, counties, cities, and other government entities at times find it necessary to acquire property against the wishes of the owner. If a taxpayer’s property is involuntarily converted by a government agency through a condemnation or a negotiated sale under the threat of condemnation and the taxpayer has a gain resulting from the involuntary conversion, the taxpayer may elect to postpone recognition of the gain by buying a qualified replacement property within a specified time period.

The tax deferral provisions of Section 1033 are in many respects easier to meet than those of Section 1031. Taxpayers are allowed to take constructive receipt of the proceeds and therefore, the use of a qualified intermediary to hold the funds is not required.

Section 1033 also provides that a taxpayer has a period of up to three years to roll over the proceeds into a new investment property that is “similar or related in service or use to the property so converted”.

Similarly to Section 1031, conversion of real property into “property of like-kind” to be held for business or investment is considered a conversion into property “similar or related in service or use” and qualifies for Section 1033 treatment.

1031 Investment Services assists clients in sourcing qualified replacement property which meets their investment objectives and 1033 exchange requirements, provides necessary due diligence and analysis, and offers guidance throughout the process in order to successfully complete their 1033 exchange.

Neither 1031 Investment Services, LLC nor DFPG Investments, Inc. provide tax or legal advice.  Investors should consult with a qualified tax or legal professional regarding 1031 exchange and/or tax related issues.