Build-to-Suit & Improvement Exchanges

1031 Build-to-Suit & Improvement Exchanges

What are build-to-suit, construction or improvement exchanges?

Taxpayers sometimes need to acquire property on which they desire to construct improvements or complete renovations that they wish to include as part of their exchange replacement property. Improvements on land a taxpayer has already acquired will not count as replacement property in a 1031 tax deferred exchange. By utilizing a build-to-suit, improvement or construction exchange, it would be possible for a taxpayer to receive property that is improved to the taxpayer's specifications in a tax deferred exchange.

Example of a simple forward improvement exchange

In a forward improvement or construction exchange, for example, 1031 proceeds from the sale of the relinquished property are received and held by the qualified intermediary (QI) under a tax deferred exchange agreement and the related assignment agreement

Under a separate qualified exchange accommodation agreement (QEAA) and related documents entered into between the taxpayer and the exchange accommodation titleholder (EAT), the 1031 proceeds are then used by the EAT to purchase the property requiring the improvements.

Within the 180-day period after the sale of the relinquished property, while the replacement property is parked with the EAT, improvements may be constructed on the property. Exchange proceeds may be used to fund the improvements through draw requests submitted by the taxpayer to the QI and the EAT.  If there are not sufficient exchange funds for the purchase and the desired improvements, the taxpayer may provide additional funds to the EAT or may secure a loan to provide the necessary funds.

In a safe-harbor transaction, transfer of the improved replacement property is made from the EAT to the taxpayer within 180 days after the relinquished property sale.  

Exchange accommodation titleholder services provided by Accruit

Bankers Escrow provides all types of complex parking transactions through its parent company, Accruit, a national leader in 1031 exchange services.  Accruit Exchange Accommodation Services, LLC offers nationwide exchange accommodation titleholder services.  For more information please contact Bankers Escrow at 800-571-6595.

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