Robert J. and Anne L. Wilson - Page 14

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               Realized gain can be deferred under section 1033 if (1)                
          nonrecognition treatment is elected, (2) qualified replacement              
          property is purchased within time limits specified, and (3) the             
          cost of the qualified replacement property equals or exceeds the            
          amount realized on the conversion.  Sec. 1033(a)(2)(A).  The                
          regulations provide that section 1033 deferral is "deemed" to be            
          elected to the extent that a realized gain from an involuntary              
          conversion is not included in the return for the taxable year or            
          years in which any of such gain is realized.  Sec. 1.1033(a)-               
          2(c)(2), Income Tax Regs.  If the property condemned is "real               
          property (not including stock in trade or other property held               
          primarily for sale) held for productive use in a trade or                   
          business", then replacement property will qualify for                       
          nonrecognition if it is either of "like kind" or "similar or                
          related in service or use" to the property converted.  Sec.                 
          1033(g)(1); cf. sec. 1033(a)(2)(A) (property not described in               
          sec. 1033(g)(1) may only be replaced with property that is                  
          "similar or related in service or use").  Furthermore, if the               
          condemned property falls under the section 1033(g) rules, the               
          replacement period is extended from 2 years to 3 years.  Sec.               
          1033(g)(4); cf. sec. 1033(a)(2)(B)(i).  Finally, if the taxpayer            
          purchases replacement property for an amount less than the amount           
          realized on the conversion, gain must be recognized on this                 
          excess amount pro tanto.  Sec. 1033(a)(2)(A).                               

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Last modified: May 25, 2011