If a property will be condemned in the future and the landowner will receive a condemnation award, should the landowner do a §1031 exchange with the proceeds and buy a new property or should the landowner go forward with a §1033 exchange? What is the better choice?
The §1031 option may potentially be restrictive. With the §1031 exchange, the landowner cannot take possession of the money. If the condemnation award check is made out to the landowner, he cannot do a §1031. The money must go directly to a Qualified Intermediary (QI) to qualify for a §1031 exchange. Once he gets the condemnation award, he has 45 days to identify a property. The landowner is locked into the subject property and then has 135 days to close. He has only 180 days to identify and close on a property.
The §1033 has the potential to give the landowner more flexibility. With the §1033 exchange option, he has more time (up to 2 or 3 years) to identify a property to purchase and can take possession of the money. He can find a property to purchase or invest in other options, such as a Delaware Statutory Trust (DST).
The landowner can buy any property with or without the DST using a §1033 exchange.