Remember – the IRS has restricted 1031 exchanges to only real estate. Defining what real estate actually is can get a little tricky when it comes to build to suit exchanges.
Is a dining room table real estate? No.
Is a new 4K TV that’s attached to the wall real estate? No.
Is a two by four that’s lying on the job site (not affixed to anything) real estate? No.
Is the plumber’s invoice for work not yet complete real estate? No. Pre-paid materials and contractors don’t count.
However, built-in fixtures (a water heater that’s permanently plumbed in, for example) may be included. These are items that were personal property until they were incorporated into the structure of the replacement property. So some things may count because they are permanently affixed to the property. Other moveable items of tangible personal property, such as a table, cannot be included for 1031 exchange purposes.
In a construction exchange, you have to do a like-kind exchange meaning you need to build enough real property improvements that exist as real estate. How do you prove that? The title company may be disbursing for your mortgage lender and they keep very accurate records. Your general contractor could provide a written statement. You could even go out with your camera and take video and pictures of the site. It’s on your shoulders to prove that you received real estate of equivalent value and equity.
CPEC1031, LLC – Located in Minneapolis, MN
At CPEC1031, LLC we are your go-to professionals for facilitating 1031 exchanges of like-kind real estate. Our team of 1031 exchange intermediaries have over two decades of experience working with clients throughout the United States on tax-deferred exchanges of real property. Let us put our expertise to work on your next 1031 exchange. We can walk you through the exchange process from beginning to end and make sure you have a full understanding of the various rules and requirements. Contact us today at our Minneapolis location to learn more about the tax-saving benefits of section 1031 and how you can start your next like-kind exchange.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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