Can a 1031 Deferred Exchange be used to build-to-suit new improvements on Replacement Property?
The build-to-suit exchange (also referred to as a “construction” or “improvement” exchange) is a Tax-Deferred Exchange in which improvements are made to the Replacement Property. Once the necessary improvements are completed (within the 180-day exchange time period), ownership is transferred to the Exchange Party and the exchange transaction is completed. This exchange variation gives investors more flexibility, providing the opportunity to either improve an existing property or construct a new Replacement Property. An Exchange Party should consider a build-to-suit exchange when the value of the Replacement Property will not result in complete deferral of the capital gain tax. This situation arises when the purchase of replacement properties will not use all the cash proceeds in the exchange account or there will be insufficient replacement debt. Either exchange proceeds or additional debt can be used to pay for the Replacement Property. If additional debt is used for improvements, loa
