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Apartment Building
1033 EXCHANGE

Through a transaction called 1033 Exchange, the Internal Revenue Code (IRC) governs the tax consequences when a property is compulsorily or involuntarily converted in whole or in part into cash or other property.

SECTION 1033 EXCHANGE?

Internal Revenue Code Section 1033 governs the tax consequences when a property is compulsorily or involuntarily converted in whole or in part into cash or other property. This is commonly referred to as an "involuntary conversion" since the loss of property is beyond the control of the taxpayer and realize gain because the insurance or condemnation proceeds exceed the owner's tax basis in the property. Section 1033 does not require a Qualified Intermediary (QI). In a Section 1033 Exchange, the taxpayer can receive the sales proceeds and hold them until the replacement property is purchased. If not all the proceeds are used towards acquiring the replacement property, the taxpayer is taxed on the difference. In addition, replacement property cannot be acquired from a related party. 

EVENTS THAT MAY QUALIFY FOR 1033 EXCHANGE

- Casualty

- Condemnation

- Destruction

- Earthquake

- Eminent Domain

- Fire

- Hurricane

- Seizure

- Theft

KEY COMPARISONS

1033 EXCHANGE  VS.  1031 EXCHANGE

Involuntary Sale

Voluntary Sale

Does not require

Accommodator/Qualified Intermediary (QI)

Requires

Accommodator/Qualified Intermediary (QI)

2 to 3 years replacement period

45-day identification and 180-day completion replacement period

Additional debt can offset equity

Additional debt cannot offset equity

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