IRS Publication 544 reads as follow:
“Replacement period.
To postpone reporting your gain from a condemnation, you must buy replacement property within a certain period of time. This is the replacement period. The replacement period for a condemnation begins on the earlier of the following dates.
The replacement period generally ends 2 years after the end of the first tax year in which any part of the gain on the condemnation is realized. However, see the exceptions below.
Three-year replacement period for certain property. If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the end of the first tax year in which any part of the gain on the condemnation is realized. However, this 3-year replacement period cannot be used if you replace the condemned property by acquiring control of a corporation owning property that is similar or related in service or use.
Extended replacement period for taxpayers affected by other federally declared disasters. If you are affected by a federally declared disaster, the IRS may grant disaster relief by extending the periods to perform certain tax-related acts for 2020, including the replacement period, by up to 1 year.
What the IRS writes in their publication is subjective. Our experience leads us to this recommendation:
Do the Exchange in the Year in which You Receive the Proceeds.
We have many reasons for making this recommendation and we’ll gladly share them with you when you call.
