Recently we’ve been seeing a lot of interest from people in build-to-suit 1031 exchanges. These people are often moving out of facilities in a more urban areas where land is more expensive, out to more exurban, suburban, or rural areas where the land is less expensive. They are building new facilities to their specifications that meet their business needs. The most tax efficient way to do this is to set it up as a build-to-suit 1031 exchange. In that situation, the qualified intermediary can acquire the new land, hold title to the land during the exchange period, and during that period of time expend the remainder of the exchange funds constructing improvements on that property.
Do These Improvements Need to Happen within the 180 Day Exchange Period?
If you want to do a safe-harbor exchange, the answer is yes. You’ve got 180 days, which starts with the earlier of the closing of the relinquished property or the acquisition of the replacement property in a reverse exchange, in which to complete your exchange. If you want to go outside of the safe-harbor, you can try going outside of that 180 day deadline but it comes with risk.
In a non safe-harbor exchange where the intermediary is acquiring the replacement property and constructing its improvements, there is no maximum time frame that the intermediary can hold the property. Going outside of the safe harbor has potentially significant advantages, but it also comes with some risk in that the IRS doesn’t love non safe-harbor exchanges (even though there is substantial case law saying they are legitimate).
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.
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