roof repair.jpgImprovement Exchanges

Construction/Improvement exchanges occur when the taxpayer wishes to make improvements to the replacement property utilizing the sale proceeds of the relinquished property. This usually transpires when the fair market value of the replacement property is less than that of the relinquished property. If the taxpayer were to acquire the replacement property and construct the improvements, the improvements would not qualify as like-kind property. Therefore, the taxpayer cannot take title to the replacement property until the improvements are completed. Typically, the Qualified Intermediary (QI) (or an affiliate of the QI) will take title, sign the contract with the builder and have the improvements completed. Once the improvements are completed, the intermediary conveys title to the Taxpayer.


Construction exchanges do require more planning than a typical delayed exchange but are an excellent solution for taxpayers who intend to make improvements. To maximize the 180-Day Exchange Period, arrangements should be made so the QI can take title to the property soon after the relinquished property is conveyed to a buyer. All permits should be secured, the contract with the builder signed and financing in place so construction can begin immediately.
