In general, doing a build-to-suit construction exchange on land already owned by the taxpayer is considered swimming upstream and contrary to the general trend. An exchange of real estate owned by a taxpayer for improvements on land owned by the same taxpayer does not meet the requirements of section 1031. Moreover, Rev. Rul. 67-255, 1967-2 C.C. 270, holds that a building constructed on land owned by a taxpayer is not of a like kind to involuntarily converted land of the same taxpayer.
That being said, there is a private letter ruling (PLF-125107-13) that has been used to fashion a work-around to construct improvements on a new leasehold estate (on top of the fee title owned by the taxpayer). This is kind of like four dimensional chess. You’ve got the fee title and then another level called the leasehold estate, on which the constructed improvements will exist.
More Information on 1031 Exchanges
If you’re looking for more information on 1031 exchanges, you’ve come to the right place! At CPEC1031, LLC we have been providing qualified intermediary services to taxpayers for over twenty years. During our time in the industry, we have built up a solid track record of helping our clients achieve capital gains tax deferral under section 1031 of the Internal Revenue Code. If you own investment real property that’s help for investment or business use, you could benefit from section 1031 too. Reach out to our professionals today to learn more about the 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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