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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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