The three-year period commences with closing of the sale and ends on the third anniversary of the end of the year in which the sale took place. This means that any type of real property held for investment purposes will qualify for replacement of the sale of your farm land. The replacement property may be improved or unimproved under these rules. It is even possible to construct improvements on land a taxpayer is already in title on. There are no requirements for escrowing cash received from a condemnation sale under 1033.
Taxpayers can use the cash as they wish.
There are no requirements for use of the condemnation sale cash for closing on replacement real estate. This will comply with the requirements for making an election to defer gain under 1033 as well as comply with the reporting requirements. The 1031 rules are generally very liberal as to what constitutes like-kind replacement property. Safe harbors are provided under 1031 like-kind personal property under the General Asset Classes and Product Classes. However, these like-kind provisions under 1031 for the replacement of personal property do not apply to the sale and replacement of personal property under IRC 1033.