An improvement exchange — also called a construction or build-to-suit exchange — allows you to use your exchange proceeds to fund improvements on the replacement property. This is ideal when the replacement property is worth less than your relinquished property, or when you want to develop raw land into a higher-value asset.
The Problem It Solves
In a standard exchange, you must acquire a replacement property of equal or greater value to defer all taxes. If your replacement property is worth less, the difference (called 'boot') is taxable. An improvement exchange lets you use the remaining proceeds to fund construction, bringing the total value up to the required threshold.
- Defer taxes even when the replacement property costs less than the relinquished property
- Use exchange proceeds to fund construction or renovation
- Develop raw land into a higher-value investment
- Upgrade an existing building to increase its value
How It Works
The EAT takes title to the replacement property and manages the construction process during the exchange period. All improvements must be substantially completed within the 180-day exchange window. The property is then transferred to you with the improvements in place.
- EAT holds title during the construction period
- Construction must be substantially complete within 180 days
- Proceeds fund improvements through a construction escrow
- Property transfers to you with completed improvements
Improvement 1031 Exchange: Using Your Proceeds for Construction
A detailed walkthrough of the improvement exchange structure, including how to use exchange proceeds for construction, the EAT arrangement, and strategies for maximizing your tax deferral when the replacement property needs work.
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Call us at 866-455-7271 or contact us online to schedule a free consultation. Located in Loveland, Ohio, we serve clients nationwide.
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