§1033 Exchange - Involuntary Exchange

A §1033 exchange refers to a tax-deferral strategy under §1033 of the Internal Revenue Code, which applies when property is involuntarily converted—typically due to events like:

• Eminent domain (government seizure or condemnation)
• Natural disasters (fires, floods, etc.)
• Theft or destruction

Key Points

• Purpose: Allows you to defer capital gains taxes if you reinvest the proceeds from the loss or condemnation into similar (like-kind) property.'

• Timing: Generally, you have 2 years from the end of the tax year in which the gain is realized to reinvest (3 years in some government condemnation cases).

• Replacement Property: Must be similar or related in service or use to the property lost.



• No Intermediary Needed: Unlike a §1031 exchange, a §1033 does not require a Qualified Intermediary, and you can receive the proceeds directly.
  

Example:

If a property you own is taken by the government through eminent domain and you receive $1 million, you can defer capital gains taxes if you reinvest that money into qualifying replacement property within the allowed time frame.