Distinct from a voluntary 1031 exchange — Section 1033 applies when property is involuntarily converted, and unlike a 1031 exchange, cash can pass through the taxpayer’s hands without disqualifying deferral.
How it works
Proceeds minus basis gives the realized gain. Gain is recognized only to the extent proceeds aren’t reinvested in qualifying replacement property — the rest defers.
What this does not include
Section 1033 replacement property must generally be acquired within a specific replacement period (commonly two years, longer for certain condemnations) — this calculator computes the gain math assuming timely qualifying reinvestment, not the timing requirement itself.
How to use this calculator
- Enter proceeds received, adjusted basis of the converted property, and amount reinvested in replacement property.
Frequently asked questions
What qualifies as an “involuntary conversion”?
Property destroyed by casualty, stolen, or condemned (taken by government eminent domain), where the owner receives insurance proceeds or a condemnation award rather than choosing to sell voluntarily.
How is this different from a 1031 exchange?
A 1031 exchange requires a more structured like-kind swap, often through a qualified intermediary; Section 1033 allows cash proceeds to be received directly and later reinvested, offering more flexibility given the involuntary nature of the conversion.
What if replacement property costs more than the proceeds?
The full realized gain can still be deferred as long as at least the full proceeds amount is reinvested — spending more doesn’t defer additional gain beyond the total realized gain itself.
