The short answer
No. An involuntary conversion is governed by section 1033, not section 1031, and section 1033 is the easier of the two: no qualified intermediary, no 45-day identification list, and you may hold the money yourself until you replace. The replacement period ends two years after the close of the first tax year in which any part of the gain is realized, and three years if the property was condemned business or investment real estate. What you are allowed to buy is much stricter after a fire than after a taking.
At a glance
| Governing section | §1033 covers destruction, theft, seizure, requisition and condemnation |
|---|---|
| No intermediary | §1033(a)(2)(A) asks you to "purchase" the replacement; you may hold the proceeds |
| Clock starts | Disposition date, or the earliest threat of condemnation if that came first |
| Clock ends | 2 years after the close of the first tax year in which any gain is realized |
| Condemned real property | 3 years, and the like-kind standard, under §1033(g)(1) and (g)(4) |
| Destruction excluded | Reg. §1.1033(g)-1(a): "but not destruction" - fire keeps the stricter test |
| Disaster residence | 4 years under §1033(h)(1)(B) for a federally declared disaster |
| The election | Made by omitting the gain from income; details still reported that year |
Section 1033 is the involuntary track, and most of what you know from 1031 is missing
The section applies where property is "compulsorily or involuntarily converted" by destruction, theft, seizure, requisition or condemnation, or by the threat or imminence of the last three. A fire, a hurricane, a state taking and a sale made under a condemnation notice are all inside it.
Section 1033(a)(2)(A) asks only that you "purchase other property similar or related in service or use to the property so converted". There is no exchange, so there is no constructive receipt problem and no intermediary standing between you and the money.
There is no 45-day list either. The only discipline is the replacement period and the standard the replacement has to satisfy.
Your deadline is two years after the end of the tax year the gain lands in
Section 1033(a)(2)(B) sets the window. It begins on the date of disposition, or the earliest date of the threat or imminence of requisition or condemnation if that came first, and it ends "2 years after the close of the first taxable year in which any part of the gain upon the conversion is realized".
Hypothetical: a calendar-year owner's rental burns in November 2026 and the insurer pays more than the property's basis in March 2027. The gain is first realized in 2027, so the period runs to 31 December 2029, more than three years after the fire.
Property bought before the disposition counts only if you still hold it on the disposition date, under section 1033(a)(2)(A)(i). Buying first is therefore possible here in a way it is not in a forward exchange.
Condemnation gets three years and the like-kind standard; destruction gets neither
Section 1033(g)(1) provides that for real property held for productive use in a trade or business or for investment, converted by seizure, requisition or condemnation, "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". Section 1033(g)(4) then substitutes "3 years" for "2 years".
Treas. Reg. §1.1033(g)-1(a) draws the boundary word for word: "disposition means the seizure, requisition, or condemnation (but not destruction) of the converted property, or the sale or exchange of such property under threat or imminence of seizure, requisition, or condemnation."
A fire, a flood or a windstorm is destruction. It keeps the two-year period and the stricter standard, and that single distinction is what owners of burned-out rentals most often get wrong.
How strict "similar or related in service or use" actually is
Treas. Reg. §1.1033(a)-2(c)(9) gives the examples, and they are unforgiving. There is no qualifying investment where "the proceeds of unimproved real estate, taken upon condemnation proceedings, are invested in improved real estate", or where "the proceeds of conversion of real property are applied in reduction of indebtedness previously incurred".
That first example is now overridden for condemned business and investment real property by section 1033(g), which Congress added in 1958. It survives as a picture of how the general test reads, and the general test is exactly what governs a casualty.
Paying down a loan on a property you already own is not a replacement under either standard. Using exchange proceeds to pay down an existing mortgage reaches the same conclusion on the section 1031 side.
Federally declared disasters are a third track with numbers of their own
For a principal residence converted by a federally declared disaster, section 1033(h)(1)(B) substitutes "4 years" for "2 years". Insurance proceeds for unscheduled personal contents are not taxed at all, and the residence and its contents are treated as a single item of property.
For business or investment property in a disaster area, section 1033(h)(2) applies the loosest standard in the section: any "tangible property of a type held for productive use in a trade or business" is treated as similar or related in service or use. The period still stays at two years unless the event was a condemnation.
Section 1033(j) adds hazard-mitigation buyouts. A transfer to a federal, state, local or tribal government under the Stafford Act or the National Flood Insurance Act "shall be treated as an involuntary conversion to which this section applies".
You elect by staying quiet, and you can ask for more time
Treas. Reg. §1.1033(a)-2(c)(2) requires "all of the details in connection with an involuntary conversion of property at a gain" to be reported in the return for the year the gain is realized, and treats leaving the gain out of income as the election itself.
If you then fail to replace, or replace "at a cost lower than was anticipated at the time of the election", the liability for that year is recomputed on an amended return. The assessment period stays open for three years after you notify the IRS either way, under section 1033(a)(2)(C).
An extension is available under section 1033(a)(2)(B)(ii). The application goes in before the period expires and has to show reasonable cause for not being able to replace in time; a late application needs reasonable cause for the delay as well.
Whether a DST or a net-leased building can be the replacement
Under section 1033(g) the standard is like kind, the same standard section 1031 uses, so a fractional interest is analysed the same way. Rev. Rul. 2004-86 treats a conforming Delaware Statutory Trust interest as an interest in the underlying real property rather than a certificate of beneficial interest.
After a casualty the stricter service-or-use test applies and no published ruling addresses a trust interest in that setting. Ask for a written opinion before you commit insurance money; putting 1033 proceeds into a DST sets out what to ask for.
One trap applies whatever you buy. If your realized gain on property converted during the year exceeds $100,000, section 1033(i) bars an individual from acquiring the replacement from a related person. Put the whole plan in front of your own CPA or attorney first, because the election is made on a return that is awkward to unwind.
Related questions
I sold under threat of condemnation rather than waiting for the taking. Does that count?
Yes. Section 1033(a)(2)(E)(ii) defines the disposition to include "the sale or exchange of such property under threat or imminence of requisition or condemnation", so the three-year period and the like-kind standard are available.
Can I keep part of the insurance money?
Yes, and that part is taxed. Gain is recognized "only to the extent that the amount realized upon such conversion exceeds the cost" of the replacement, so every dollar you do not reinvest is exposed.
Could I run a 1031 exchange on a condemnation instead?
You can, and some owners prefer the exchange structure. Section 1033 is usually more generous on both time and control of the money, so compare them with your CPA before the award is paid; the deferral map lines up the alternatives.
What if the replacement ends up costing less than I told the IRS?
You amend. Reg. §1.1033(a)-2(c)(2) requires the year's liability to be recomputed where replacement is made at a lower cost than anticipated, and the amended return is the mechanism.
Does my basis carry over the way it does in an exchange?
Effectively yes. Section 1033(b) gives the replacement the basis of the converted property, adjusted for money not spent and gain recognized, so the deferred gain follows the new property.
Sources
Checked against these publications on September 19, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- 26 U.S.C. §1033, involuntary conversions, including (g), (h), (i) and (j)
- Treas. Reg. §1.1033(a)-2, conversion into money: election, replacement period and examples
- Treas. Reg. §1.1033(g)-1, condemnation of real property and the "but not destruction" limit
- Rev. Rul. 2004-86, Delaware statutory trusts treated as interests in the underlying property (IRS)
- IRS Publication 544, Sales and Other Dispositions of Assets - Involuntary Conversions
- First American Exchange, condemned property and casualty losses: 1033 tax deferral