What are the differences between a 1031 and 1033 Exchange?
WHAT IS A 1033 EXCHANGE?
Section 1033 Exchanges 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
|1033 Exchange||1031 Exchange|
|Involuntary Sale||Voluntary Sale|
|No Requirement for accommodator||Requires accommodator / Qualified Intermediary (QI)|
|2 -4 year replacement period||45-day identification and 180 day Completion period|
|Additional debt can offset equity||Additional debt cannot offset equity|