26 U.S.C. § 1033
Involuntary conversions
Into property similar or related in service or use to the property so converted, no gain shall be recognized.
If the election provided in subparagraph (A) is made by the taxpayer and such other property or such stock was purchased before the beginning of the last taxable year in which any part of the gain upon such conversion is realized, any deficiency, to the extent resulting from such election, for any taxable year ending before such last taxable year may be assessed (notwithstanding the provisions of section 6212(c) or 6501 or the provisions of any other law or rule of law which would otherwise prevent such assessment) at any time before the expiration of the period within which a deficiency for such last taxable year may be assessed.
The term “control” means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.
The term “disposition of the converted property” means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or exchange of such property under threat or imminence of requisition or condemnation.
In the case of property purchased by the taxpayer in a transaction described in subsection (a)(2) which resulted in the nonrecognition of any part of the gain realized as the result of a compulsory or involuntary conversion, the basis shall be the cost of such property decreased in the amount of the gain not so recognized; and if the property purchased consists of more than 1 piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs.
If the basis of stock in a corporation is decreased under paragraph (2), an amount equal to such decrease shall also be applied to reduce the basis of property held by the corporation at the time the taxpayer acquired control (as defined in subsection (a)(2)(E)) of such corporation.
Subparagraph (A) shall not apply to the extent that it would (but for this subparagraph) require a reduction in the aggregate adjusted bases of the property of the corporation below the taxpayer’s adjusted basis of the stock in the corporation (determined immediately after such basis is decreased under paragraph (2)).
No reduction in the basis of any property under this paragraph shall exceed the adjusted basis of such property (determined without regard to such reduction).
If more than 1 property is described in a clause of subparagraph (C), the reduction under this paragraph shall be allocated among such property in proportion to the adjusted bases of such property (as so determined).
For purposes of this subtitle, if property lying within an irrigation project is sold or otherwise disposed of in order to conform to the acreage limitation provisions of Federal reclamation laws, such sale or disposition shall be treated as an involuntary conversion to which this section applies.
For purposes of this subtitle, if livestock are destroyed by or on account of disease, or are sold or exchanged because of disease, such destruction or such sale or exchange shall be treated as an involuntary conversion to which this section applies.
For purposes of this subtitle, the sale or exchange of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy purposes in excess of the number the taxpayer would sell if he followed his usual business practices shall be treated as an involuntary conversion to which this section applies if such livestock are sold or exchanged by the taxpayer solely on account of drought, flood, or other weather-related conditions.
In the case of drought, flood, or other weather-related conditions described in paragraph (1) which result in the area being designated as eligible for assistance by the Federal Government, subsection (a)(2)(B) shall be applied with respect to any converted property by substituting “4 years” for “2 years”.
The Secretary may extend on a regional basis the period for replacement under this section (after the application of subparagraph (A)) for such additional time as the Secretary determines appropriate if the weather-related conditions which resulted in such application continue for more than 3 years.
For purposes of subsection (a), if, because of drought, flood, or other weather-related conditions, or soil contamination or other environmental contamination, it is not feasible for the taxpayer to reinvest the proceeds from compulsorily or involuntarily converted livestock in property similar or related in use to the livestock so converted, other property (including real property in the case of soil contamination or other environmental contamination) used for farming purposes shall be treated as property similar or related in service or use to the livestock so converted.
For purposes of subsection (a), if real property (not including stock in trade or other property held primarily for sale) held for productive use in trade or business or for investment is (as the result of its seizure, requisition, or condemnation, or threat or imminence thereof) compulsorily or involuntarily converted, property of a like kind to be held either for productive use in trade or business or for investment shall be treated as property similar or related in service or use to the property so converted.
Paragraph (1) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subsection (a)(2)(A).
A taxpayer may elect, at such time and in such manner as the Secretary may prescribe, to treat property which constitutes an outdoor advertising display as real property for purposes of this chapter. The election provided by this subparagraph may not be made with respect to any property with respect to which an election under section 179(a) (relating to election to expense certain depreciable business assets) is in effect.
An election made under subparagraph (A) may not be revoked without the consent of the Secretary.
For purposes of this paragraph, the term “outdoor advertising display” means a rigidly assembled sign, display, or device permanently affixed to the ground or permanently attached to a building or other inherently permanent structure constituting, or used for the display of, a commercial or other advertisement to the public.
For purposes of this subsection, an interest in real property purchased as replacement property for a compulsorily or involuntarily converted outdoor advertising display defined in subparagraph (C) (and treated by the taxpayer as real property) shall be considered property of a like kind as the property converted without regard to whether the taxpayer’s interest in the replacement property is the same kind of interest the taxpayer held in the converted property.
In the case of a compulsory or involuntary conversion described in paragraph (1), subsection (a)(2)(B)(i) shall be applied by substituting “3 years” for “2 years”.
No gain shall be recognized by reason of the receipt of any insurance proceeds for personal property which was part of such contents and which was not scheduled property for purposes of such insurance.
Subsection (a)(2)(B) shall be applied with respect to any property so converted by substituting “4 years” for “2 years”.
If a taxpayer’s property held for productive use in a trade or business or for investment is located in a disaster area and is compulsorily or involuntarily converted as a result of a federally declared disaster, tangible property of a type held for productive use in a trade or business shall be treated for purposes of subsection (a) as property similar or related in service or use to the property so converted.
The terms “federally declared disaster” and “disaster area” shall have the respective meaning given such terms by section 165(i)(5).
For purposes of this subsection, the term “principal residence” has the same meaning as when used in section 121, except that such term shall include a residence not treated as a principal residence solely because the taxpayer does not own the residence.
If the property which is involuntarily converted is held by a taxpayer to which this subsection applies, subsection (a) shall not apply if the replacement property or stock is acquired from a related person. The preceding sentence shall not apply to the extent that the related person acquired the replacement property or stock from an unrelated person during the period applicable under subsection (a)(2)(B).
For purposes of this subsection, a person is related to another person if the person bears a relationship to the other person described in section 267(b) or 707(b)(1).
For purposes of this subtitle, if property is sold or otherwise transferred to the Federal Government, a State or local government, or an Indian tribal government to implement hazard mitigation under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as in effect on the date of the enactment of this subsection) or the National Flood Insurance Act (as in effect on such date), such sale or transfer shall be treated as an involuntary conversion to which this section applies.
The Robert T. Stafford Disaster Relief and Emergency Assistance Act, referred to in subsec. (j), is Pub. L. 93–288,
The date of the enactment of this subsection, referred to in subsec. (j), is the date of enactment of Pub. L. 109–7, which was approved
The National Flood Insurance Act, referred to in subsec. (j), probably means the National Flood Insurance Act of 1968, title XIII of Pub. L. 90–448,
2018—Subsec. (h)(2). Pub. L. 115–141 inserted “is” before “located”.
2014—Subsec. (h)(2). Pub. L. 113–295, § 211(c)(1)(A), inserted “is” before “compulsorily”.
Subsec. (h)(3). Pub. L. 113–295, § 221(a)(27)(D), substituted “section 165(i)(5)” for “section 165(h)(3)(C)”.
Subsecs. (j) to (l). Pub. L. 113–295, § 221(a)(77), redesignated subsecs. (k) and (l) as (j) and (k), respectively, and struck out former subsec. (j) which related to sales or exchanges to implement microwave relocation policy.
2008—Subsec. (h). Pub. L. 110–343, § 706(a)(2)(D)(i), amended heading generally. Prior to amendment, heading read as follows: “Special rules for property damaged by Presidentially declared disasters”.
Subsec. (h)(1). Pub. L. 110–343, § 706(a)(2)(D)(i), reenacted heading without change and amended introductory provisions generally. Prior to amendment, introductory provisions read as follows: “If the taxpayer’s principal residence or any of its contents is compulsorily or involuntarily converted as a result of a Presidentially declared disaster—”.
Subsec. (h)(2). Pub. L. 110–343, § 706(a)(2)(D)(ii), substituted “investment located in a disaster area and compulsorily or involuntarily converted as a result of a federally declared disaster” for “investment is compulsorily or involuntarily converted as a result of a Presidentially declared disaster”.
Subsec. (h)(3). Pub. L. 110–343, § 706(a)(2)(D)(iii), amended par. (3) generally. Prior to amendment, par. (3) defined “Presidentially declared disaster” for purposes of subsec. (h).
2005—Subsecs. (k), (l). Pub. L. 109–7 added subsec. (k) and redesignated former subsec. (k) as (l).
2004—Subsec. (e). Pub. L. 108–357, § 311(b), designated existing provisions as par. (1), inserted heading, and added par. (2).
Subsec. (f). Pub. L. 108–357, § 311(a), in heading, substituted “in certain cases” for “where there has been environmental contamination” and, in text, inserted “drought, flood, or other weather-related conditions, or” after “because of” and “in the case of soil contamination or other environmental contamination” after “including real property”.
Subsec. (h)(3). Pub. L. 108–311 inserted “Robert T. Stafford” before “Disaster Relief and Emergency Assistance Act”.
1997—Subsec. (e). Pub. L. 105–34, § 913(b), inserted “, flood, or other weather-related conditions” after “drought” in heading and “, flood, or other weather-related conditions” before period at end of text.
Subsec. (h)(4). Pub. L. 105–34, § 312(d)(1), substituted “section 121” for “section 1034”.
Subsec. (i). Pub. L. 105–34, § 1087(a), amended heading and text of subsec. (i) generally. Prior to amendment, text read as follows:
“(1)
“(A) a C corporation, or
“(B) a partnership in which 1 or more C corporations own, directly or indirectly (determined in accordance with section 707(b)(3)), more than 50 percent of the capital interest, or profits interest, in such partnership at the time of the involuntary conversion,
subsection (a) shall not apply if the replacement property or stock is acquired from a related person. The preceding sentence shall not apply to the extent that the related person acquired the replacement property or stock from an unrelated person during the period described in subsection (a)(2)(B).
“(2)
Subsec. (k)(3). Pub. L. 105–34, § 312(d)(7), amended par. (3) generally. Prior to amendment, par. (3) read as follows: “For one-time exclusion from gross income of gain from involuntary conversion of principal residence by individual who has attained age 55, see section 121.”
1996—Subsec. (b). Pub. L. 104–188, § 1610(a), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “If the property was acquired, after
Subsec. (h). Pub. L. 104–188, § 1119(b)(2), substituted “property” for “principal residences” in heading.
Subsec. (h)(1). Pub. L. 104–188, § 1119(b)(3), substituted “Principal residences” for “In general” in heading.
Subsec. (h)(2). Pub. L. 104–188, § 1119(a), added par. (2). Former par. (2) redesignated (3).
Subsec. (h)(3). Pub. L. 104–188, § 1119(a), (b)(1), redesignated par. (2) as (3) and substituted “property” for “residence” before “is located”. Former par. (3) redesignated (4).
Subsec. (h)(4). Pub. L. 104–188, § 1119(a), redesignated par. (3) as (4).
1995—Subsec. (i). Pub. L. 104–7, § 3(a)(1), added subsec. (i). Former subsec. (i) redesignated (j).
Subsec. (j). Pub. L. 104–7, § 3(b)(1), added subsec. (j). Former subsec. (j) redesignated (k).
Pub. L. 104–7, § 3(a)(1), redesignated subsec. (i) as (j).
Subsec. (k). Pub. L. 104–7, § 3(b)(1), redesignated subsec. (j) as (k).
1993—Subsecs. (h), (i). Pub. L. 103–66 added subsec. (h) and redesignated former subsec. (h) as (i).
1990—Subsec. (g)(3)(A). Pub. L. 101–508 struck out “with respect to which the investment credit determined under section 46(a) is or has been claimed or” after “to any property”.
1984—Subsec. (g)(3)(A). Pub. L. 98–369 substituted “the investment credit determined under section 46(a)” for “the credit allowed by section 38 (relating to investment in certain depreciable property)”.
1981—Subsec. (g)(3)(A). Pub. L. 97–34 substituted “(relating to election to expense certain depreciable business assets)” for “(relating to additional first-year depreciation allowance for small business)”.
1978—Subsec. (a)(2)(A)(ii). Pub. L. 95–600, § 703(j)(5), substituted “subsection (b)” for “subsection (c)”.
Subsecs. (f), (g). Pub. L. 95–600, § 542(a), added subsec. (f) and redesignated former subsecs. (f) and (g) as (g) and (h), respectively.
Subsec. (h). Pub. L. 95–600, §§ 404(c)(4), 542(a), redesignated subsec. (g) as (h) and substituted in par. (3) “one-time exclusion” for “exclusion” and “age 55” for “age 65”.
1976—Subsec. (a)(2), (3). Pub. L. 94–455, §§ 1901(a)(128)(A), (B), 1906(b)(13)(A), redesignated par. (3) as (2), struck out in heading “where disposition occurred after 1950” after “Conversion into money”, in provisions preceding subpar. (A) “and the disposition of the converted property (as defined in paragraph (2)) occurred after
Subsec. (b). Pub. L. 94–455, § 1901(a)(128)(C), (D), redesignated subsec. (c) as (b) and substituted “or section 112(f)(2) of the Internal Revenue Code of 1939” for “or (2)”. Former subsec. (b), which related to application of subsec. (a) in the case of property used by taxpayer as his principal residence, if the destruction, theft, etc., occurred after 1950 and before 1954, was struck out.
Subsecs. (c) to (e). Pub. L. 94–455, § 1901(a)(128)(C), redesignated subsecs. (d) to (f) as (c) to (e), respectively. Former subsec. (c) redesignated (b).
Subsec. (f). Pub. L. 94–455, §§ 1901(a)(128)(C), (E), (F), 2127(a), 2140(a), redesignated subsec. (g) as (f), in par. (2) struck out provisions relating to conversion of real property before
Subsecs. (g), (h). Pub. L. 94–455, § 1901(a)(128)(C), redesignated subsec. (h) as (g). Former subsec. (g) redesignated (f).
1969—Subsec. (a)(3)(B). Pub. L. 91–172 substituted “2 years” for “one year”.
1964—Subsec. (h)(3). Pub. L. 88–272 added par. (3).
1958—Subsec. (a)(2). Pub. L. 85–866, § 45, inserted provision defining “control”.
Subsecs. (g), (h). Pub. L. 85–866, § 46(a), added subsec. (g) and redesignated former subsec. (g) as (h).
1956—Subsecs. (f), (g). Act
Amendment by section 211(c)(1)(A) of Pub. L. 113–295 effective as if included in the provisions of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Pub. L. 110–343, div. C, to which such amendment relates, see section 211(d) of Pub. L. 113–295, set out as a note under section 143 of this title.
Amendment by section 221(a)(27)(D), (77) of Pub. L. 113–295 effective
Amendment by Pub. L. 110–343 applicable to disasters declared in taxable years beginning after
Pub. L. 109–7, § 1(c)(2),
Amendment by Pub. L. 108–357 applicable to any taxable year with respect to which the due date (without regard to extensions) for the return is after
Amendment by section 312(d)(1), (7) of Pub. L. 105–34 applicable to sales and exchanges after
Amendment by section 913(b) of Pub. L. 105–34 applicable to sales and exchanges after
Pub. L. 105–34, title X, § 1087(b),
Pub. L. 104–188, title I, § 1119(d)(1),
Pub. L. 104–188, title I, § 1610(b),
Pub. L. 104–7, § 3(a)(2),
Pub. L. 104–7, § 3(b)(2),
Pub. L. 103–66, title XIII, § 13431(b),
Amendment by Pub. L. 101–508 applicable to property placed in service after
Amendment by Pub. L. 98–369 applicable to taxable years beginning after
Amendment by Pub. L. 97–34 applicable to property placed in service after
Amendment by section 404(c)(4) of Pub. L. 95–600 applicable to sales or exchanges after
Pub. L. 95–600, title V, § 542(b),
Amendment by section 703(j)(5) of Pub. L. 95–600 effective on
Amendment by section 1901(a)(128) of Pub. L. 94–455 effective for taxable years beginning after
Pub. L. 94–455, title XXI, § 2127(b),
Pub. L. 94–455, title XXI, § 2140(b),
Pub. L. 91–172, title IX, § 915(b),
Amendment by Pub. L. 88–272 applicable to dispositions after
Amendment by Pub. L. 85–866 applicable to taxable years beginning after
Act June 29, 1956, ch. 464, § 5(b), 70 Stat. 407, provided that:
For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to