DEFERRING TAXES ON §1033 EXCHANGES
Eminent domain lawyers work hard to secure just compensation for property owners. However, in gain situations, the IRS and most states want their share, too. Fortunately, solutions are available that seek to soften or eliminate the tax bite. When property is involuntarily converted, I.R.C. §1033 provides guidelines to defer capital gains and other taxes. Known as a “1033 exchange”, the code allows for non-recognition status if the proceeds are invested in similar property within 2 years after the close of the first taxable year in which any part of the gain is realized. Similar generally means property that is “similar or related in service or use” to the property so converted, terms that the IRS narrowly defines. Note that this period is extended to 3 years for condemnations of investment property, and more liberal “like-kind” rules apply to replacement property. The longer exchange period provides ample opportunity for tax planning. If properly structured, property owners can complete a valid 1033 exchange, yet still “cash out” a significant portion of their award proceeds tax free. Passive, turn-key options may be available to qualified landowners unable to find suitable replacement property. Lastly, taxes that have been already paid can potentially be refunded via an amended tax return. To learn more about these powerful tax codes, see https://www.1031dst.co m/investments/1033-exchanges/ or conference with Catharine Fulmer at (631) 474-1610 Ext. 210. Catharine can also be reached at [email protected]
By Alan N. Lichtenstein
Senior Investment Advisor
Fortitude Investment Group
