What to Do if Construction Isn’t Done by the 180 Day 1031 Exchange Deadline?

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In a build-to-suit exchange you are racing the clock to construct like-kind improvements so that the value of the acquired land plus the value of the partially completed improvements exceed the value of your relinquished property. By the end of your 180 day exchange period, you want to have received the replacement property of equal or greater value than what you disposed of. But what if construction doesn't finish by the end of your 180 days?

Uncontrollable Variables

The problem with construction is that there a lot of variables that are outside of your control, such as:

  • Supply Issues

  • Work Issues

  • Economic Issues

  • Permitting

  • Licensing

  • Weather

All of these factors can hurt your ability to manufacture improvements within the exchange period.

Incomplete Construction

So the question arises: what if construction isn't fully finished? Or what if it isn't finished enough so that you've received a replacement property of equivalent value?

If you don't continue your investment into a property of equivalent or greater value within the hundred and eighty days, you may recognize some gains to the extent you've received a lesser valued property.

Partial Tax Deferral

But even that may still give you partial tax deferral. It's a factor of how low your basis was in the old property to determine how great your victory may be, even if it's just a partial victory.

If you're thinking about doing a build-to-suit we suggest you get planning early and have all of your contractors, permits, and plans in place perhaps even before you dispose of the relinquished property so that you can win the race against the 180 day clock.

  • 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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