The Benefits of a Build-to-Suit 1031 Exchange

build to suite 1031 exchange

Sometimes taxpayers will sell their relinquished property and want to buy a new replacement property that is built specifically to their specifications. This article will focus on the rules and regulations that govern build-to-suit 1031 exchanges.

General Build-to-Suit Rules

The general rule for build-to-suit exchanges is that you can’t construct improvements on land that the taxpayer already owns. The IRS takes the position that any improvements you construct on the land that you already own don't count for the 1031.

So in order to do a build-to-suit construction exchange, the taxpayer sells their old relinquished property and the money comes to the intermediary and is held in an escrow account. Then the intermediary forms an LLC to be the straw man purchaser that acquires title to the new property and holds title to it while the improvements or remodeling is completed.

The Benefits

The idea is that the taxpayer gets two awesome benefits:

  1. They get a property built to their specific needs and specifications.
  2. They get to defer the gains built into this property built to their specific needs.

Take this example: you sell a relinquished property for a million dollars, buy a piece of raw land for five hundred thousand, and then you make construction improvements of five hundred thousand dollars or more during the 180 day exchange period, then you get to defer every penny of tax. You have acquired or received a replacement property of equal or greater value than what you relinquished. And the beauty of a build-to-suit is you get to construct those improvements to get the requisite value up and you get to construct them to your specific values and needs.

  • 1031 Hotline: If you have questions about build to suit 1031 exchanges in Minneapolis, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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