What is an Improvement Exchange?

So you are an investor considering a #1031 exchange. You have existing property you no longer want or need, but are having a hard time finding the perfect replacement property. You’ve seen several possibilities, but each had drawbacks that killed the deal. Are there any options open to you that would still allow you to sell your relinquished property and defer all your capital gains liability?

Yes.

When you want to acquire replacement property that meets your exact criteria, consider conducting an Improvement Exchange. This allows you to construct or renovate the ideal replacement property and still qualify under section 1031. However, an Improvement Exchange is not without its risks.

First, all improvements must be made within the 180-day time limit. Second, the replacement property – once all improvements are complete – needs to have the same or higher value of the relinquished property.

However, if you can meet both requirements, then you can get the perfect replacement property and defer your capital gains taxes. Given the potential complexities of an Improvement Exchange, you should discuss this strategy with your tax advisors prior to selling your relinquished property.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.