1031 Construction Exchange

Comments(3)

• 
  wexeter26th August, 2004

  Yes, you can. It is called a build-to-suit 1031 exchange or construction or improvement 1031 exchange.
  
  They are much more complicated than regular forward 1031 exchange transactions. The Qualified Intermediary would acquire and hold title to the replacement property while the 1031 exchange funds are used to construct and or improve the property and then the property would be conveyed to you.
  
  The construction and/or improvements must be completed within the 180 day exchange period.
  
  There are many other little issues to consider, I would be happy to chat with you regarding the details.
  [addsig]

• 
  sfcoffee26th August, 2004

  Thanks Bill. What if we already bought the property a few years ago. Now we want to build on it w/ $ when and if we sell this rental in Hawaii.
  
  Also, there will most likely be left over $. I assume whatever isn't exchanged is taxed as a cap gain?
  
  One more question. What happens if contruction isn't finished in 180 days?
  
  Thanks for your thoughts on this.

• 
  wexeter27th August, 2004

  Hi sfcoffee,
  
  Unfortunately, once you have purchased the property it is too late to structure the 1031 exchange. The Qualified Intermediary must be assigned into the purchase transaction and acquire and hold title to the replacement (acquisition) property prior to the close and then hold title to the property during the construction/improvements.
  
  The construction/improvements would have to be completed within the 180 calendar days after the close on the sale (relinquished) property transaction and you must receive legal title to the property from your Qualified Intermediary no later than the 180th day.
  
  You are also correct in that what ever cash is left over after the 180 day period would be considered to be boot and therefore taxable to the extent that you have capital gains in the property.
  
  
  
  _________________
  Bill Exeter[ Edited by wexeter on Date 08/27/2004 ]