123ArticleOnline Logo
Welcome to 123ArticleOnline.com!
ALL >> Investing---Finance >> View Article

Is 1031 Exchange Same As 1033 Exchange?

Profile Picture
By Author: Angilina
Total Articles: 1
Comment this article
Facebook ShareTwitter ShareGoogle+ ShareTwitter Share

Though both 1031 and 1033 exchanges let investors defer capital gains taxes, both sections are entirely different from each other.

Real estate investors often fail to differentiate between 1031 and 1033 exchanges. They assume both sections to be similar. However, that's not true. Apart from the benefit of tax-deferment, there is no other similarity between 1031 and 1033 exchanges.

Section 1031 of IRC -

Section 1031 of IRC, commonly known as a 1031 exchange, lets investors exchange an investment property for another while deferring capital gains taxes.
To qualify for a 1031 exchange, both relinquished and replacement properties must be like-kind. Properties involved in a 1031 exchange must be held for use in trade, business, or for investment purposes. A 1031 exchange can be done over and over again without any restriction.

1033 Exchange Explained

A 1033 exchange lets investors defer capital gains taxes on exchanging like-kind properties. However, unlike a 1031 exchange, where a property owner willingly exchanges one property for another, a 1033 exchange can only be performed on account of involuntary conversions, such as eminent domain, condemnation, theft, etc.

Eminent domain is the power using which a state or federal government can seize any private property from an investor for public use. In return, the investor gets the compensation or the current market value of the seized property.

Difference In Deadlines -

The major difference between 1031 and 1033 exchanges is the time limit. As you may know, upon closing on the sale of the relinquished property, a 1031 investor has 180 days to complete the exchange. The investor must identify the potential replacement property within 45 days.

However, in 1033 exchanges, since properties are seized from investors, they get a time limit of 2-4 years for completing the exchange. On account of losing commercial properties, the deadline will extend to 3 years. However, if an investor loses their property in a presidentially declared disaster, they get 4 years to complete the exchange. There is no identification period in 1033 exchanges. So, investors don’t need to bear the burden of identifying a replacement property within a short time of 45 days.

Nature of Properties -

Another major difference between both sections is the kind of properties that can be exchanged. In a 1031 exchange, both relinquished and replacement properties need to be like-kind. For example, a multi-family unit can be exchanged for an industrial property or any other investment property. However, in 1033 exchanges, both relinquished and replacement properties must be similar in use or services. For example, a multi-family unit can only be exchanged for another multi-family unit and not for any other investment property.
How To Do A 1031 Exchange?

To qualify for a 1031 exchange, both relinquished and replacement properties must be held for use in trade, business, or for investment purposes. Personal properties don't qualify for a 1031 exchange. So, you may not be able to trade your primary residence for a rental property using this unique tax-deferred exchange.
To know more about 1031 rules and guidelines, you can write to us or reach out to our 1031 experts.

More About the Author

Have experience in 1031 exchange

Total Views: 56Word Count: 526See All articles From Author

Add Comment

Investing / Finance Articles

1. 3 Factors To Consider Before Making An Ncd Investment
Author: Maithili Pawar

2. How Relative Strength Rating Helps You Pick Outstanding Growth Stocks
Author: Marketsmith India

3. Share Market Tips : How Relative Strength Rating Helps You Pick Outstanding Growth Stocks
Author: Marketsmith India

4. Bitcoin Trader - The Fraudulent Bitcoin Trading Firm
Author: Alex Miller

5. Key To Finding Great Stocks : Why The Buyer Demand Rating ?
Author: Marketsmith India

6. Short Term Personal Loans That Skip The Credit Check Process
Author: Novlik Nisudan

7. Things To Know Before Getting An Endowment Policy
Author: Shaheen Shaikh

8. Overcome Your Financial Expenses With Car Title Loans
Author: Ethan Carter

9. Student Loan Scams And How You Can Save Yourself From Being A Victim Of One
Author: Alex Miller

10. The 6 Cryptocurrency Exchanges In India Which Can Be The Saviour Of The Economy
Author: coinbreze

11. Sbi Has Launched New Product On Real Estate Finance
Author: Stock Investor

12. Distribution Days: How To Track Market Weakness In A Confirmed Uptrend
Author: Marketsmith India

13. Expert Views On Gold And Silver Prices
Author: Stock Investor

14. How To Spot A Bullish Base-on-base Chart Pattern
Author: Marketsmith India

15. Busting The Investing Myth That Penny Stocks Can Lead To Marvellous Riches
Author: Marketsmith India

Login To Account
Login Email:
Password:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: