26 U.S.C. § 1033 — Involuntary conversions

Page 2274 TITLE 26—INTERNAL REVENUE CODE § 1033 1984—Subsec. (a). Pub. L. 98–369 inserted provision that no gain or loss shall be recognized by a corpora- tion with respect to any lapse or acquisition of an op- tion to buy or sell its stock (including treasury stock). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2000 AMENDMENT Pub. L. 106–554, § 1(a)(7) [title IV, § 401(j)], Dec. 21, 2000, 114 Stat. 2763, 2763A–651, provided that: ‘‘The amend- ments made by this section [enacting section 1234B of this title and amending this section and sections 1091, 1092, 1223, 1233, 1234A, 1256 and 7701 of this title] shall take effect on the date of the enactment of this Act [Dec. 21, 2000].’’ EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title I, § 57(b), July 18, 1984, 1984, 98 Stat. 574, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to options acquired or lapsed after the date of the enact- ment of this Act [July 18, 1984] in taxable years ending after such date.’’ § 1033. Involuntary conversions (a) General rule If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted— (1) Conversion into similar property Into property similar or related in service or use to the property so converted, no gain shall be recognized. (2) Conversion into money Into money or into property not similar or related in service or use to the converted prop- erty, the gain (if any) shall be recognized ex- cept to the extent hereinafter provided in this paragraph: (A) Nonrecognition of gain If the taxpayer during the period specified in subparagraph (B), for the purpose of re- placing the property so converted, purchases other property similar or related in service or use to the property so converted, or pur- chases stock in the acquisition of control of a corporation owning such other property, at the election of the taxpayer the gain shall be recognized only to the extent that the amount realized upon such conversion (re- gardless of whether such amount is received in one or more taxable years) exceeds the cost of such other property or such stock. Such election shall be made at such time and in such manner as the Secretary may by regulations prescribe. For purposes of this paragraph— (i) no property or stock acquired before the disposition of the converted property shall be considered to have been acquired for the purpose of replacing such converted property unless held by the taxpayer on the date of such disposition; and (ii) the taxpayer shall be considered to have purchased property or stock only if, but for the provisions of subsection (b) of this section, the unadjusted basis of such property or stock would be its cost within the meaning of section 1012. (B) Period within which property must be re- placed The period referred to in subparagraph (A) shall be the period beginning with the date of the disposition of the converted property, or the earliest date of the threat or immi- nence of requisition or condemnation of the converted property, whichever is the earlier, and ending— (i) 2 years after the close of the first tax- able year in which any part of the gain upon the conversion is realized, or (ii) subject to such terms and conditions as may be specified by the Secretary, at the close of such later date as the Sec- retary may designate on application by the taxpayer. Such application shall be made at such time and in such manner as the Secretary may by regulations pre- scribe. (C) Time for assessment of deficiency attrib- utable to gain upon conversion If a taxpayer has made the election pro- vided in subparagraph (A), then— (i) the statutory period for the assess- ment of any deficiency, for any taxable year in which any part of the gain on such conversion is realized, attributable to such gain shall not expire prior to the expira- tion of 3 years from the date the Secretary is notified by the taxpayer (in such man- ner as the Secretary may by regulations prescribe) of the replacement of the con- verted property or of an intention not to replace, and (ii) such deficiency may be assessed be- fore the expiration of such 3–year period notwithstanding the provisions of section 6212(c) or the provisions of any other law or rule of law which would otherwise pre- vent such assessment. (D) Time for assessment of other deficiencies attributable to election 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 conver- sion 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 provi- sions of section 6212(c) or 6501 or the provi- sions 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 tax- able year may be assessed. (E) Definitions For purposes of this paragraph— (i) Control 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. Page 2275 TITLE 26—INTERNAL REVENUE CODE § 1033 (ii) Disposition of the converted property The term ‘‘disposition of the converted property’’ means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or ex- change of such property under threat or imminence of requisition or condemna- tion. (b) Basis of property acquired through involun- tary conversion (1) Conversions described in subsection (a)(1) If the property was acquired as the result of a compulsory or involuntary conversion de- scribed in subsection (a)(1), the basis shall be the same as in the case of the property so con- verted— (A) decreased in the amount of any money received by the taxpayer which was not ex- pended in accordance with the provisions of law (applicable to the year in which such conversion was made) determining the tax- able status of the gain or loss upon such con- version, and (B) increased in the amount of gain or de- creased in the amount of loss to the tax- payer recognized upon such conversion under the law applicable to the year in which such conversion was made. (2) Conversions described in subsection (a)(2) In the case of property purchased by the tax- payer 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 de- creased in the amount of the gain not so rec- ognized; and if the property purchased consists of more than 1 piece of property, the basis de- termined under this sentence shall be allo- cated to the purchased properties in propor- tion to their respective costs. (3) Property held by corporation the stock of which is replacement property (A) In general If the basis of stock in a corporation is de- creased 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 ac- quired control (as defined in subsection (a)(2)(E)) of such corporation. (B) Limitation Subparagraph (A) shall not apply to the extent that it would (but for this subpara- graph) require a reduction in the aggregate adjusted bases of the property of the cor- poration below the taxpayer’s adjusted basis of the stock in the corporation (determined immediately after such basis is decreased under paragraph (2)). (C) Allocation of basis reduction The decrease required under subparagraph (A) shall be allocated— (i) first to property which is similar or related in service or use to the converted property, (ii) second to depreciable property (as de- fined in section 1017(b)(3)(B)) not described in clause (i), and (iii) then to other property. (D) Special rules (i) Reduction not to exceed adjusted basis of property No reduction in the basis of any property under this paragraph shall exceed the ad- justed basis of such property (determined without regard to such reduction). (ii) Allocation of reduction among prop- erties 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 de- termined). (c) Property sold pursuant to reclamation laws 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. (d) Livestock destroyed by disease For purposes of this subtitle, if livestock are destroyed by or on account of disease, or are sold or exchanged because of disease, such de- struction or such sale or exchange shall be treated as an involuntary conversion to which this section applies. (e) Livestock sold on account of drought, flood, or other weather-related conditions (1) In general For purposes of this subtitle, the sale or ex- change of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy pur- poses 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. (2) Extension of replacement period (A) In general 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 con- verted property by substituting ‘‘4 years’’ for ‘‘2 years’’. (B) Further extension by Secretary The Secretary may extend on a regional basis the period for replacement under this section (after the application of subpara- graph (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. (f) Replacement of livestock with other farm property in certain cases For purposes of subsection (a), if, because of drought, flood, or other weather-related condi- Page 2276 TITLE 26—INTERNAL REVENUE CODE § 1033 tions, or soil contamination or other environ- mental contamination, it is not feasible for the taxpayer to reinvest the proceeds from compulsorily or involuntarily converted live- stock in property similar or related in use to the livestock so converted, other property (includ- ing real property in the case of soil contamina- tion 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. (g) Condemnation of real property held for pro- ductive use in trade or business or for invest- ment (1) Special rule For purposes of subsection (a), if real prop- erty (not including stock in trade or other property held primarily for sale) held for pro- ductive use in trade or business or for invest- ment is (as the result of its seizure, requisi- tion, or condemnation, or threat or imminence thereof) compulsorily or involuntarily con- verted, property of a like kind to be held ei- ther for productive use in trade or business or for investment shall be treated as property similar or related in service or use to the prop- erty so converted. (2) Limitations Paragraph (1) shall not apply to the pur- chase of stock in the acquisition of control of a corporation described in subsection (a)(2)(A). (3) Election to treat outdoor advertising dis- plays as real property (A) In general A taxpayer may elect, at such time and in such manner as the Secretary may pre- scribe, to treat property which constitutes an outdoor advertising display as real prop- erty for purposes of this chapter. The elec- tion 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 cer- tain depreciable business assets) is in effect. (B) Election An election made under subparagraph (A) may not be revoked without the consent of the Secretary. (C) Outdoor advertising display For purposes of this paragraph, the term ‘‘outdoor advertising display’’ means a rig- idly assembled sign, display, or device per- manently affixed to the ground or perma- nently attached to a building or other inher- ently permanent structure constituting, or used for the display of, a commercial or other advertisement to the public. (D) Character of replacement property For purposes of this subsection, an inter- est in real property purchased as replace- ment property for a compulsorily or invol- untarily converted outdoor advertising dis- play defined in subparagraph (C) (and treat- ed by the taxpayer as real property) shall be considered property of a like kind as the property converted without regard to wheth- er the taxpayer’s interest in the replacement property is the same kind of interest the taxpayer held in the converted property. (4) Special rule In the case of a compulsory or involuntary conversion described in paragraph (1), sub- section (a)(2)(B)(i) shall be applied by sub- stituting ‘‘3 years’’ for ‘‘2 years’’. (h) Special rules for property damaged by feder- ally declared disasters (1) Principal residences If the taxpayer’s principal residence or any of its contents is located in a disaster area and is compulsorily or involuntarily converted as a result of a federally declared disaster— (A) Treatment of insurance proceeds (i) Exclusion for unscheduled personal property 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. (ii) Other proceeds treated as common fund In the case of any insurance proceeds (not described in clause (i)) for such resi- dence or contents— (I) such proceeds shall be treated as re- ceived for the conversion of a single item of property, and (II) any property which is similar or related in service or use to the residence so converted (or contents thereof) shall be treated for purposes of subsection (a)(2) as property similar or related in service or use to such single item of property. (B) Extension of replacement period Subsection (a)(2)(B) shall be applied with respect to any property so converted by sub- stituting ‘‘4 years’’ for ‘‘2 years’’. (2) Trade or business and investment property 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 fed- erally declared disaster, tangible property of a type held for productive use in a trade or busi- ness shall be treated for purposes of subsection (a) as property similar or related in service or use to the property so converted. (3) Federally declared disaster; disaster area The terms ‘‘federally declared disaster’’ and ‘‘disaster area’’ shall have the respective meaning given such terms by section 165(i)(5). (4) Principal residence 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 tax- payer does not own the residence. Page 2277 TITLE 26—INTERNAL REVENUE CODE § 1033 (i) Replacement property must be acquired from unrelated person in certain cases (1) In general If the property which is involuntarily con- verted is held by a taxpayer to which this sub- section applies, subsection (a) shall not apply if the replacement property or stock is ac- quired from a related person. The preceding sentence shall not apply to the extent that the related person acquired the replacement prop- erty or stock from an unrelated person during the period applicable under subsection (a)(2)(B). (2) Taxpayers to which subsection applies This subsection shall apply to— (A) a C corporation, (B) a partnership in which 1 or more C cor- porations own, directly or indirectly (deter- mined 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, and (C) any other taxpayer if, with respect to property which is involuntarily converted during the taxable year, the aggregate of the amount of realized gain on such property on which there is realized gain exceeds $100,000. In the case of a partnership, subparagraph (C) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders. (3) Related person 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). (j) Sales or exchanges under certain hazard miti- gation programs 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 Dis- aster 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. (k) Cross references (1) For determination of the period for which the taxpayer has held property involuntarily converted, see section 1223. (2) For treatment of gains from involuntary con- versions as capital gains in certain cases, see sec- tion 1231(a). (3) For exclusion from gross income of gain from involuntary conversion of principal residence, see section 121. (Aug. 16, 1954, ch. 736, 68A Stat. 303; June 29, 1956, ch. 464, § 5(a), 70 Stat. 407; Pub. L. 85–866, title I, §§ 45, 46(a), Sept. 2, 1958, 72 Stat. 1641; Pub. L. 88–272, title II, § 206(b)(3), Feb. 26, 1964, 78 Stat. 40; Pub. L. 91–172, title IX, § 915(a), Dec. 30, 1969, 83 Stat. 723; Pub. L. 94–455, title XIX, §§ 1901(a)(128), 1906(b)(13)(A), title XXI, §§ 2127(a), 2140(a), Oct. 4, 1976, 90 Stat. 1785, 1834, 1920, 1932; Pub. L. 95–600, title IV, § 404(c)(4), title V, § 542(a), title VII, § 703(j)(5), Nov. 6, 1978, 92 Stat. 2870, 2888, 2941; Pub. L. 97–34, title II, § 202(d)(2), Aug. 13, 1981, 95 Stat. 221; Pub. L. 98–369, div. A, title IV, § 474(r)(24), July 18, 1984, 98 Stat. 844; Pub. L. 101–508, title XI, § 11813(b)(20), Nov. 5, 1990, 104 Stat. 1388–555; Pub. L. 103–66, title XIII, § 13431(a), Aug. 10, 1993, 107 Stat. 567; Pub. L. 104–7, § 3(a)(1), (b)(1), Apr. 11, 1995, 109 Stat. 94, 95; Pub. L. 104–188, title I, §§ 1119(a), (b), 1610(a), Aug. 20, 1996, 110 Stat. 1765, 1844; Pub. L. 105–34, title III, § 312(d)(1), (7), title IX, § 913(b), title X, § 1087(a), Aug. 5, 1997, 111 Stat. 839, 840, 878, 959; Pub. L. 108–311, title IV, § 408(a)(7)(C), Oct. 4, 2004, 118 Stat. 1191; Pub. L. 108–357, title III, § 311(a), (b), Oct. 22, 2004, 118 Stat. 1466, 1467; Pub. L. 109–7, § 1(b), Apr. 15, 2005, 119 Stat. 22; Pub. L. 110–343, div. C, title VII, § 706(a)(2)(D)(i)–(iii), Oct. 3, 2008, 122 Stat. 3922; Pub. L. 113–295, div. A, title II, §§ 211(c)(1)(A), 221(a)(27)(D), (77), Dec. 19, 2014, 128 Stat. 4033, 4041, 4049; Pub. L. 115–141, div. U, title IV, § 401(a)(167), Mar. 23, 2018, 132 Stat. 1192.) Editorial Notes REFERENCES IN TEXT The Robert T. Stafford Disaster Relief and Emer- gency Assistance Act, referred to in subsec. (j), is Pub. L. 93–288, May 22, 1974, 88 Stat. 143, which is classified principally to chapter 68 (§ 5121 et seq.) of Title 42, The Public Health and Welfare. For complete classification of this Act to the Code, see Short Title note set out under section 5121 of Title 42 and Tables. 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 Apr. 15, 2005. The National Flood Insurance Act, referred to in sub- sec. (j), probably means the National Flood Insurance Act of 1968, title XIII of Pub. L. 90–448, Aug. 1, 1968, 82 Stat. 572, which is classified principally to chapter 50 (§ 4001 et seq.) of Title 42, The Public Health and Wel- fare. For complete classification of this Act to the Code, see Short Title note set out under section 4001 of Title 42 and Tables. AMENDMENTS 2018—Subsec. (h)(2). Pub. L. 115–141 inserted ‘‘is’’ be- fore ‘‘located’’. 2014—Subsec. (h)(2). Pub. L. 113–295, § 211(c)(1)(A), in- serted ‘‘is’’ before ‘‘compulsorily’’. Subsec. (h)(3). Pub. L. 113–295, § 221(a)(27)(D), sub- stituted ‘‘section 165(i)(5)’’ for ‘‘section 165(h)(3)(C)’’. Subsecs. (j) to (l). Pub. L. 113–295, § 221(a)(77), redesig- nated 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 pol- icy. 2008—Subsec. (h). Pub. L. 110–343, § 706(a)(2)(D)(i), amended heading generally. Prior to amendment, head- ing read as follows: ‘‘Special rules for property dam- aged by Presidentially declared disasters’’. Subsec. (h)(1). Pub. L. 110–343, § 706(a)(2)(D)(i), reen- acted heading without change and amended introduc- tory provisions generally. Prior to amendment, intro- ductory 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), sub- stituted ‘‘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. Page 2278 TITLE 26—INTERNAL REVENUE CODE § 1033 (3) defined ‘‘Presidentially declared disaster’’ for pur- poses 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, sub- stituted ‘‘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 contami- nation or other environmental contamination’’ after ‘‘including real property’’. Subsec. (h)(3). Pub. L. 108–311 inserted ‘‘Robert T. Stafford’’ before ‘‘Disaster Relief and Emergency As- sistance 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-re- lated 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) IN GENERAL.—In the case of— ‘‘(A) a C corporation, or ‘‘(B) a partnership in which 1 or more C corpora- tions own, directly or indirectly (determined in ac- cordance 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 conver- sion, subsection (a) shall not apply if the replacement prop- erty 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 de- scribed in subsection (a)(2)(B). ‘‘(2) RELATED PERSON.—For purposes of this sub- section, a person is related to another person if the per- son bears a relationship to the other person described in section 267(b) or 707(b)(1).’’ Subsec. (k)(3). Pub. L. 105–34, § 312(d)(7), amended par. (3) generally. Prior to amendment, par. (3) read as fol- lows: ‘‘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 prop- erty was acquired, after February 28, 1913, as the result of a compulsory or involuntary conversion described in subsection (a)(1) or section 112(f)(2) of the Internal Rev- enue Code of 1939, the basis shall be the same as in the case of the property so converted, decreased in the amount of any money received by the taxpayer which was not expended in accordance with the provisions of law (applicable to the year in which such conversion was made) determining the taxable status of the gain or loss upon such conversion, and increased in the amount of gain or decreased in the amount of loss to the taxpayer recognized upon such conversion under the law applicable to the year in which such conversion was made. This subsection shall not apply in respect of property acquired as a result of a compulsory or invol- untary conversion of property used by the taxpayer as his principal residence if the destruction, theft, seizure, requisition, or condemnation of such residence, or the sale or exchange of such residence under threat or im- minence thereof, occurred after December 31, 1950, and before January 1, 1954. In the case of property pur- chased by the taxpayer in a transaction described in subsection (a)(3) which resulted in the nonrecognition of any part of the gain realized as the result of a com- pulsory 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 pur- chased consists of more than one piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their re- spective costs.’’ 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), redesig- nated par. (2) as (3) and substituted ‘‘property’’ for ‘‘residence’’ before ‘‘is located’’. Former par. (3) redes- ignated (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 sub- sec. (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 deter- mined 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 invest- ment in certain depreciable property)’’. 1981—Subsec. (g)(3)(A). Pub. L. 97–34 substituted ‘‘(re- lating to election to expense certain depreciable busi- ness assets)’’ for ‘‘(relating to additional first-year de- preciation 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), redesig- nated 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 oc- curred after 1950’’ after ‘‘Conversion into money’’, in provisions preceding subpar. (A) ‘‘and the disposition of the converted property (as defined in paragraph (2)) oc- curred after December 31, 1950,’’ after ‘‘use to the con- verted property,’’ and in subpar. (B)(ii) ‘‘or his dele- gate’’ after ‘‘Secretary’’ wherever appearing, and added subpar. (E). Former par. (2), which related to involun- tary conversions into money where dispositions oc- curred prior to 1951, was struck out. Subsec. (b). Pub. L. 94–455, § 1901(a)(128)(C), (D), redes- ignated 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), re- designated 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 Jan. 1, 1958, and substituted reference to subsection (a)(2)(A) for reference to subsection (a)(3)(A), and added pars. (3) and (4). Former subsec. (f) redesignated (e). Subsecs. (g), (h). Pub. L. 94–455, § 1901(a)(128)(C), redes- ignated subsec. (h) as (g). Former subsec. (g) redesig- nated (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). Page 2279 TITLE 26—INTERNAL REVENUE CODE § 1033 1958—Subsec. (a)(2). Pub. L. 85–866, § 45, inserted provi- sion 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 June 29, 1956, added subsec. (f) and redesignated former subsec. (f) as (g). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2014 AMENDMENT Amendment by section 211(c)(1)(A) of Pub. L. 113–295 effective as if included in the provisions of the Tax Ex- tenders 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 Dec. 19, 2014, subject to a savings provi- sion, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title. EFFECTIVE DATE OF 2008 AMENDMENT Amendment by Pub. L. 110–343 applicable to disasters declared in taxable years beginning after Dec. 31, 2007, see section 706(d)(1) of Pub. L. 110–343, set out as a note under section 56 of this title. EFFECTIVE DATE OF 2005 AMENDMENT Pub. L. 109–7, § 1(c)(2), Apr. 15, 2005, 119 Stat. 22, pro- vided that: ‘‘The amendments made by subsection (b) [amending this section] shall apply to sales or other dispositions before, on, or after the date of the enact- ment of this Act [Apr. 15, 2005].’’ EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to any tax- able year with respect to which the due date (without regard to extensions) for the return is after Dec. 31, 2002, see section 311(d) of Pub. L. 108–357, set out as a note under section 451 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Amendment by section 312(d)(1), (7) of Pub. L. 105–34 applicable to sales and exchanges after May 6, 1997, with certain exceptions, see section 312(d) of Pub. L. 105–34, set out as a note under section 121 of this title. Amendment by section 913(b) of Pub. L. 105–34 appli- cable to sales and exchanges after Dec. 31, 1996, see sec- tion 913(c) of Pub. L. 105–34, set out as a note under sec- tion 451 of this title. Pub. L. 105–34, title X, § 1087(b), Aug. 5, 1997, 111 Stat. 959, provided that: ‘‘The amendment made by this sec- tion [amending this section] shall apply to involuntary conversions occurring after June 8, 1997.’’ EFFECTIVE DATE OF 1996 AMENDMENT Pub. L. 104–188, title I, § 1119(d)(1), Aug. 20, 1996, 110 Stat. 1765, provided that: ‘‘The amendments made by this section [amending this section] shall apply to dis- asters declared after December 31, 1994, in taxable years ending after such date.’’ Pub. L. 104–188, title I, § 1610(b), Aug. 20, 1996, 110 Stat. 1845, provided that: ‘‘The amendment made by this sec- tion [amending this section] shall apply to involuntary conversions occurring after the date of the enactment of this Act [Aug. 20, 1996].’’ EFFECTIVE DATE OF 1995 AMENDMENT Pub. L. 104–7, § 3(a)(2), Apr. 11, 1995, 109 Stat. 95, pro- vided that: ‘‘The amendment made by paragraph (1) [amending this section] shall apply to involuntary con- versions occurring on or after February 6, 1995.’’ Pub. L. 104–7, § 3(b)(2), Apr. 11, 1995, 109 Stat. 95, pro- vided that: ‘‘The amendment made by paragraph (1) [amending this section] shall apply to sales or ex- changes after March 14, 1995.’’ EFFECTIVE DATE OF 1993 AMENDMENT Pub. L. 103–66, title XIII, § 13431(b), Aug. 10, 1993, 107 Stat. 567, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to prop- erty compulsorily or involuntarily converted as a re- sult of disasters for which the determination referred to in section 1033(h)(2) of the Internal Revenue Code of 1986 (as added by this section) is made on or after Sep- tember 1, 1991, and to taxable years ending on or after such date.’’ EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable to property placed in service after Dec. 31, 1990, but not applicable to any transition property (as defined in section 49(e) of this title), any property with respect to which qualified progress expenditures were previously taken into ac- count under section 46(d) of this title, and any property described in section 46(b)(2)(C) of this title, as such sec- tions were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101–508, set out as a note under section 45K of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of Pub. L. 98–369, set out as a note under section 21 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Amendment by Pub. L. 97–34 applicable to property placed in service after Dec. 31, 1980, in taxable years ending after that date, see section 209(a) of Pub. L. 97–34, set out as an Effective Date note under section 168 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Amendment by section 404(c)(4) of Pub. L. 95–600 ap- plicable to sales or exchanges after July 26, 1978, in tax- able years ending after such date, see section 404(d)(1) of Pub. L. 95–600, set out as a note under section 121 of this title. Pub. L. 95–600, title V, § 542(b), Nov. 6, 1978, 92 Stat. 2888, provided that: ‘‘The amendments made by sub- section (a) [amending this section] shall apply with re- spect to taxable years beginning after December 31, 1974.’’ Amendment by section 703(j)(5) of Pub. L. 95–600 effec- tive on Oct. 4, 1976, see section 703(r) of Pub. L. 95–600, set out as a note under section 46 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(a)(128) of Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. Pub. L. 94–455, title XXI, § 2127(b), Oct. 4, 1976, 90 Stat. 1921, provided that: ‘‘The amendment made by this sec- tion [amending this section] shall apply to taxable years beginning after December 31, 1970.’’ Pub. L. 94–455, title XXI, § 2140(b), Oct. 4, 1976, 90 Stat. 1932, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendment made by this section [amending this section] shall apply with respect to any disposition of converted property (with- in the meaning of section 1033(a)(2) of the Internal Rev- enue Code of 1986 [formerly I.R.C. 1954]) after December 31, 1974, unless a condemnation proceeding with respect to such property began before the date of the enact- ment of this Act [Oct. 4, 1976].’’ EFFECTIVE DATE OF 1969 AMENDMENT Pub. L. 91–172, title IX, § 915(b), Dec. 30, 1969, 83 Stat. 723, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendment made by this section [amending this section] shall apply only if the disposition of the converted property (within the meaning of section 1033(a)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) occurs after the date of the enactment of this Act [Dec. 30, 1969].’’ EFFECTIVE DATE OF 1964 AMENDMENT Amendment by Pub. L. 88–272 applicable to disposi- tions after Dec. 31, 1963, in taxable years ending after Page 2280 TITLE 26—INTERNAL REVENUE CODE [§ 1034 such date, see section 206(c) of Pub. L. 88–272, set out as an Effective Date note under section 121 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title. EFFECTIVE DATE OF 1956 AMENDMENT Act June 29, 1956, ch. 464, § 5(b), 70 Stat. 407, provided that: ‘‘The amendment made by this section [amending this section] shall apply with respect to taxable years ending after December 31, 1955, but only in the case of sales and exchanges of livestock after December 31, 1955.’’ SAVINGS PROVISION 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 Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. [§ 1034. Repealed. Pub. L. 105–34, title III, § 312(b), Aug. 5, 1997, 111 Stat. 839] Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 306; Sept. 2, 1958, Pub. L. 85–866, title I, § 46(b), 72 Stat. 1642; Feb. 26, 1964, Pub. L. 88–272, title II, § 206(b)(4), 78 Stat. 40; Jan. 2, 1975, Pub. L. 93–597, § 6(a), 88 Stat. 1953; Mar. 29, 1975, Pub. L. 94–12, title II, § 207, 89 Stat. 32; Oct. 4, 1976, Pub. L. 94–455, title XIX, §§ 1901(a)(129), 1906(b)(13)(A), 90 Stat. 1785, 1834; May 23, 1977, Pub. L. 95–30, title I, § 102(b)(13), 91 Stat. 138; Nov. 6, 1978, Pub. L. 95–600, title IV, §§ 404(c)(5), 405(a)–(c)(1), 92 Stat. 2870, 2871; Nov. 8, 1978, Pub. L. 95–615, title II, § 206, 92 Stat. 3107; Aug. 13, 1981, Pub. L. 97–34, title I, §§ 112(b)(4), 122(a), (b), 95 Stat. 195, 197; July 18, 1984, Pub. L. 98–369, div. A, title X, § 1053(a), 98 Stat. 1045; Oct. 22, 1986, Pub. L. 99–514, title XVIII, § 1878(g), 100 Stat. 2904; Nov. 10, 1988, Pub. L. 100–647, title VI, § 6002(a), 102 Stat. 3684, related to roll- over of gain on sale of principal residence. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal applicable to sales and exchanges after May 6, 1997, with certain exceptions, see section 312(d) of Pub. L. 105–34, set out as an Effective Date of 1997 Amend- ment note under section 121 of this title. § 1035. Certain exchanges of insurance policies (a) General rules No gain or loss shall be recognized on the ex- change of— (1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract or for a qualified long- term care insurance contract; (2) a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments begin- ning at a date not later than the date pay- ments would have begun under the contract exchanged, or (B) for an annuity contract, or (C) for a qualified long-term care insurance contract; (3) an annuity contract for an annuity con- tract or for a qualified long-term care insur- ance contract; or (4) a qualified long-term care insurance con- tract for a qualified long-term care insurance contract. (b) Definitions For the purpose of this section— (1) Endowment contract A contract of endowment insurance is a con- tract with an insurance company which de- pends in part on the life expectancy of the in- sured, but which may be payable in full in a single payment during his life. (2) Annuity contract An annuity contract is a contract to which paragraph (1) applies but which may be pay- able during the life of the annuitant only in installments. For purposes of the preceding sentence, a contract shall not fail to be treat- ed as an annuity contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract. (3) Life insurance contract A contract of life insurance is a contract to which paragraph (1) applies but which is not ordinarily payable in full during the life of the insured. For purposes of the preceding sen- tence, a contract shall not fail to be treated as a life insurance contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract. (c) Exchanges involving foreign persons To the extent provided in regulations, sub- section (a) shall not apply to any exchange hav- ing the effect of transferring property to any person other than a United States person. (d) Cross references (1) For rules relating to recognition of gain or loss where an exchange is not solely in kind, see sub- sections (b) and (c) of section 1031. (2) For rules relating to the basis of property ac- quired in an exchange described in subsection (a), see subsection (d) of section 1031. (Aug. 16, 1954, ch. 736, 68A Stat. 309; Pub. L. 98–369, div. A, title II, §§ 211(b)(15), 224(a), July 18, 1984, 98 Stat. 756, 776; Pub. L. 99–514, title XVIII, § 1828, Oct. 22, 1986, 100 Stat. 2851; Pub. L. 105–34, title XI, § 1131(b)(1), Aug. 5, 1997, 111 Stat. 979; Pub. L. 109–280, title VIII, § 844(b), Aug. 17, 2006, 120 Stat. 1010; Pub. L. 115–141, div. U, title IV, § 401(a)(168), Mar. 23, 2018, 132 Stat. 1192.) Editorial Notes CODIFICATION Another section 1131(b) of Pub. L. 105–34 enacted sec- tion 684 of this title. AMENDMENTS 2018—Subsec. (a)(1). Pub. L. 115–141 struck out ‘‘or’’ after semicolon at end. 2006—Subsec. (a)(1). Pub. L. 109–280, § 844(b)(3)(A), which directed amendment by inserting ‘‘or for a quali- fied long-term care insurance contract’’ before semi- colon ‘‘at the end’’, was executed by making the inser- tion before ‘‘; or’’ to reflect the probable intent of Con- gress. Subsec. (a)(2). Pub. L. 109–280, § 844(b)(3)(B), which di- rected amendment by inserting ‘‘, or (C) for a qualified long-term care insurance contract’’ before semicolon ‘‘at the end’’, was executed by making the insertion be- fore ‘‘; or’’ to reflect the probable intent of Congress. Subsec. (a)(3). Pub. L. 109–280, § 844(b)(3)(C), inserted ‘‘or for a qualified long-term care insurance contract’’ after ‘‘annuity contract’’.