In a reverse construction exchange, can you use your 1031 exchange proceeds to buy raw land and then construct improvements on that land? That’s a great question that we’ll be tackling in this article.
In a 1031 exchange, a general rule of thumb is you can’t exchange into property you already own because it wouldn’t be an exchange. So the best course of action is to have the qualified intermediary buy the new land and hold title to it while the improvements are constructed. This allows the taxpayer to exchange into, not only the raw land, but also the improvements that are constructed on the land.
Safe Harbor Exchange
Now, there are a couple of ways to go about this. The first is a safe-harbor 1031 exchange. This is the safest and easiest method, but any improvements you want to construct on the land must be completed within 180 days. There are only so many improvements you can construct during that amount of time.
Non Safe Harbor 1031 Exchange
The more complex and sophisticated method would be to do a non-safe harbor reverse exchange. With this option, you would purchase your replacement property (the raw land) and construct improvements on it first. Then, when construction is complete, you can sell your relinquished property after the fact – hence the “reverse” 1031 exchange.
Start Your 1031 Exchange Today!
Start your 1031 exchange today with CPEC1031, LLC and start realizing the tax-saving benefits of a like-kind exchange. At CPEC1031, we have over twenty years of experience working on 1031 exchanges of real estate. Let us put that experience to work for you on your next like-kind exchange. We can walk you through the entire process and make sure you are fully prepared when it comes time to close you’re your property. Contact us at our Minneapolis offices today to see how we can help you with your next 1031 exchange!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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