1031 Funds For Pre-construction House
I sold some property using a 1031 exchange to defer the gains (15%) and identified 2 properties and purchased them and have about 22K left with the intermediary.
I have a vacant lot that I bought in June and want to use a $1000 down on your lot builder who will take 12-15 months to close. Can I use $1000 of the 1031 money to do this? I want to do this on another vacant lot that I purchased but will using a $3000 down on your lot builder and again, the house will not be completed for another 12-15 months.
Anyone know? thanks! christine[ Edited by thechangingtable on Date 08/30/2004 ]
Hi Christine,
First, I do not have all of the facts regarding your scenario, so I'm going to take a few guesses and you will have to let me know if I'm correct.
It sounds like you are past your 45 day identification period because you have identified two properties and actually acquired them. In this case, you can not use funds to acquire or build real estate that has not been identified during the 45 day id period.
Also, once you own land you can not use 1031 exchange funds to build on the land that you already own and still qualify for 1031 exchange treatment. You can certainly id property and have your qualified intermediary acquire and hold title to the property while you build out the structural improvements (build-to-suit 1031 exchange or improvement exchange). You would also have to complete the build out/construction within the 180 day completion period.
If you identified only two properties and have acquired two properties and are past your 45 calendar day id period, then the excess funds are taxable.
However, you can elect - depending on your 180 day exchange period start and end time - elect to receive and trigger the taxable amount in 2004 or 2005 pursuant to Section 453 of the tax code (installment sale treatment).
Let me know if I'm off on any of my assumptions.
[addsig]