Bought a New Home Before Selling Your Fire‑Damaged Lot? Here’s How to Defer Tax

Quick Take: Buying first doesn’t automatically spoil deferral. Intent + timing can support §1033, and §121 may still exclude big chunks of gain.

The Core Issue: Sequence & Intent

If your new home clearly replaces the residence destroyed by fire—and you’re within §1033’s timeline—deferral can still apply, even if you purchased first.

Option 1 — §1033 (Primary Residence)

• Timing: Generally 2 years from end of tax year of gain (often 4 years in disaster areas).
• Order: You may buy the new home before selling the old lot.
• Proof: Keep records (insurance, bids, communications) showing replacement intent.

Option 2 — §121 Home Sale Exclusion

If you owned/used the destroyed home for 2 of 5 years, exclude up to $250k/$500k. The exclusion often applies even if you already bought the new home.

💡 Combo Play: Apply §121 first to exclude, then use §1033 to defer any remaining gain by reinvesting in the replacement.

Documentation Checklist

• Escrow statements, insurance settlements, closing docs
• Notation of disaster declaration dates (for 4‑year window)
• CPA memo electing §1033 treatment

Need clarity on sequencing?
👉 Talk with us about aligning §121 and §1033.