Improvement exchanges offer a unique method of acquiring a property and turning it into what you want. The improvements to an acquired property may be as simple as repairs to a building or as complex as brand-new construction. What’s more, you could get some of your existing property improved in the bargain. For smart investors, the improvement exchange is a business opportunity, unlike any other.
Since improvement exchange falls under the umbrella of 1031 deals, the improvements need to be completed within the one hundred and eighty (180) day window. Other considerations of the 1031 should also be observed.
The “like-kind” stipulation states that the exchangor would need to get back real property if they transfer real property. Thus, if improvements aren’t made, and the exchangor receives an undeveloped location, they may still be liable to pay taxes. If the revisions are subjected to a Napkin Test, the improved property’s value needs to be the same as or more than the relinquished property.
This final step concludes the relinquishment phase of the transfer. Up to this point, you will have passed a property on to DeferTax. We will then sell it to the buyer and store the proceeds in a specific account.
The reverse improvement exchange is almost the same as the deferred improvement exchange, with some minor differences. The acquisition process occurs before the relinquishment phase. This means that the establishment of the EAT and the transfer of title from the seller happens first. The 45-day window shifts focus from the acquisition phase to the relinquishment phase.
The exchanger must identify the properties they intend to sell by no later than 45 days after the acquisition has closed. The relinquishment phase happens as with the deferred improvement exchange. The improvement phase is unchanged, and the exchanger should know that the improvements MUST be completed before the 180-day deadline runs out.
Navigating an improvement exchange can be a challenging process for many property owners. You can count on DeferTax to help you every step of the way. Contact us today to learn more about improvement exchanges and how they can benefit you.