Question

Ida is a freelance artist. She purchased 10 acres of land in 2013. The land was held by Ida as investment property. On July 1, 2018, the land was condemned by the county government to build a new courthouse and jail facility. The county awarded Ida $550,000 for the condemnation of the land.   Ida used the full amount of the proceeds to purchase a building that she will use as a production studio for her artwork. The reinvestment occurred within the required replacement period.

            Required: Has Ida invested in qualified replacement property for purposes of IRC Section 1033? Explain

Answer 1

In case any property is condemned by government and the property which is condemend is used for business purpose or was held for investment purpose and if in exchange government gives another property to that person then that new property should be used by him for either business purpose or for investment purpose and not residential purpose, if it holds good then it will amount to qualified replacement property for the purpose of IRC section 1033.

In the given case Ida was holding land as investment property. Later on, on July 2018, land was condemned by the county government and in replacement of it was awarded $550000 for which she bought building within required timeline and started using it as a production studio, now since she was previously holding land for investment purpose and that land was condemned by government and with compensation which she was awarded she bought building and that building should be used by her either for business or should be held as investment and here she is using it for business purposes thus the condition is fulfilled and thus investment made by ida would amount to investment in qualified replacement property for the purpose of IRC section 1033.