You can do a build-to-suit exchange under the safe harbor of Rev. Proc. 237, but that caps you at 180 days to complete all your construction. Another, slightly riskier, option is to do a non-safe harbor construction exchange. In a case called “Estate of Bartell” in Florida, there was a business owner who had a drug store that was built into a strip mall. They were contained inside of a bigger structure and they wanted to have their own stand alone building. So they hired a qualified intermediary to procure a new out lot and to hold the property while the new building was constructed. This process took 17 months to complete, after which the taxpayer sold the old property and exchanged into their newly constructed property.
Everything seemed fine until they got audited and went to tax court. The tax court judge sat on the decision for a long time but eventually held in favor of the taxpayer. The IRS subsequently chose not to appeal the decision, but they did file a Notice of Non-Acquiescence, stating that they disagreed with the court’s decision.
As a result, non-safe harbor construction exchanges are a little bit riskier than safe harbor exchanges, but some taxpayers still choose to do them.
Hire a Qualified Intermediary
Hire a qualified intermediary to help with your next like-kind exchange of investment real estate today. The qualified intermediaries at CPEC1031, LLC have decades of experience working with taxpayers on their 1031 exchanges. We can guide you through the exchange process and make sure you are making informed decisions every step of the way. Contact us today to learn more about the 1031 exchange process and see how we can help. Our office is located in downtown Minneapolis but we serve clients throughout state of Minnesota and the entire United States.
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.
© 2025 Copyright Jeffrey R. Peterson All Rights Reserved