What does 'similar or related in service or use' mean in relation to involuntary conversions?
Understand the Problem
The question is asking for the interpretation of the phrase 'similar or related in service or use' in the context of involuntary conversions, specifically how it applies to different types of property owners. It presents multiple statements about how this term can be understood by owner-users, owner-investors, and general owners under specific conditions.
Answer
'Similar or related in service or use' means the replacement property is used similarly and serves similar purposes as the converted property.
The phrase 'similar or related in service or use' refers to replacement property that is used in the same manner and serves a comparable purpose as the property that was involuntarily converted.
Answer for screen readers
The phrase 'similar or related in service or use' refers to replacement property that is used in the same manner and serves a comparable purpose as the property that was involuntarily converted.
More Information
This phrase is typically used within the context of tax treatment of involuntary conversions, where it is important to ensure that any gains from the conversion are not immediately taxed if the proceeds are used to acquire property that serves a similar function or role.
Tips
A common mistake is to assume that any reinvestment qualifies, but the replacement must specifically mirror the prior property's function and purpose.
Sources
- 1033 Tax Deferred Exchange Frequently Asked Questions | Section ... - exeterco.com
- 26 CFR § 1.1033(a)-2 - Involuntary conversion into similar property - law.cornell.edu
- Section 1033 Condemnation and Involuntary Conversions - 1031 Corp - 1031corp.com
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