Build Your Replacement Property 
Do you want to construct improvements on property you plan to buy in an exchange? If so, you need a construction exchange.
How it Works
These types of exchanges are commonplace but present their own unique challenges to the exchangers. A special purpose entity (SPE), owned and controlled 100% by Summit 1031 Exchange, Inc., is used to purchase the property and make the improvements using the following process.
1. The SPE purchases the land that you want to acquire. The funds used are either borrowed from you, borrowed from a third party lender, or provided by the intermediary from the exchange proceeds received on the sale of the relinquished property.
2. The SPE enters into a construction contract, guaranteed by you, to make the necessary improvements to the purchased land. Once again, the funds come from you, a third party lender, or the intermediary (depending on the situation).
3. When improvements are completed (or completed to a point that satisfies the exchange), the SPE sells the improved property to you to complete the exchange. If the relinquished property has not yet sold, the SPE may continue to hold the replacement property until the sale of the relinquished property can be accomplished. In the meantime, the SPE will lease the improved property to you under a triple net lease.
It may also be possible to build improvements on property you already own and use those improvements as your replacement property. However, the process required to complete such an exchange is more complex, and requires the expertise of a skilled accommodator. Summit has both CPAs and Attorney's on staff to help guide you and your tax advisor through these more complex scenarios.
Construction exchanges are specifically addressed in the IRS guidelines, however, they are extremely complex, and many intermediaries are unwilling to structure them. Construction exchanges offer great solutions for replacement properties, but it is imperative to have a qualified professional involved.Summit 1031 Exchange, Inc. is one of the few intermediaries with CPAs and tax attorneys on staff and actively involved in the structuring of construction exchanges. Please contact us today for more information