May a taxpayer use exchange proceeds to construct improvements on property he/she already owns?
Various tax court cases and IRS rulings have made it clear that a taxpayer may not use exchange proceeds to complete improvements on property it already owns, even if the taxpayer temporarily conveys the property to an EAT prior to commencement of construction. If exchange proceeds are to be used for construction, it must be on new property purchased by the EAT from an unrelated third party.
Related Questions
- What happens if the taxpayer is in escrow to sell the relinquished property and then decides the want to make it part of a tax-deferred Exchange?
- What happens if the taxpayer changes their mind about buying a replacement property and wants to cancel the exchange?
- May a taxpayer use exchange proceeds to buy property he/she intends to flip, or use as a personal home/second home?
