Owner’s Guide to Avoiding Tax on Condemnation Proceeds Through Internal Revenue Code §1033 Relating to Involuntary Conversions
Monday, July 15, 2019 at 12:22PM
Clark Hill

The Internal Revenue Code allows taxpayers to defer gain arising from condemnation award.

Ordinarily, when a taxpayer sells or exchanges property, he recognizes gain equal to the difference between his basis in the property sold or exchanged and the amount of money or fair market value of property received. However, section 1033 of the Internal Revenue Code (“IRC §1033”) permits a taxpayer to defer gain if the condemnation award (or proceeds from a sale made under threat or imminence of condemnation) are timely reinvested in similar property.

You might be familiar with the practice of deferring gain through like-kind exchanges under IRC §1031. The rules governing like-kind exchanges are strict, and the deadlines are short. Section 1033 provides a more relaxed procedure, with more generous deadlines, for avoiding gain arising from “involuntary conversions.”  

Whether you expect to receive or already have received a condemnation award (or sold property under threat of condemnation), you may be able to defer your taxable gain. Clark Hill has extensive experience helping clients benefit from IRC §1033 and would be pleased to assist you. 

Article originally appeared on Clark Hill Property Owner Condemnation Services (http://michigancondemnationblog.com/).
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