I had a property I owned outright in California. It burned 100% in the fires last year. I was "cashed out" by my insurance company. I have never done nor understand how to do a 1031, if that is the proper way to avoid capital gains. It was a second home. I am ready to buy another property, I have not sold the lot I still own. The lot inventories have swelled and are not selling. I don't have to sell the lot first, or do I? I have read alot about 1033 and other suggestions. Has anyone had experience with this. What would be my next move. Mark

Hi Mark,

1031 exchanges only apply toward property held for investment or used in your trade or business.  Second homes that were destroyed by a natural disaster would fall under Section 1033.  You have two years to complete your 1033 exchange when your property was destroyed by natural disaster.  Actually, your deadline is December 31st of the year that the 2nd year falls in, so if your property was destroyed in 2007 you have until December 31st of 2009 to complete your acquisition of your replacement property.  You do not have to sell your lot if you do not want to, but you would need to sell it no later than December 31st of 2009 if you want to defer the gain into the property that you acquired.