Construction Exchange

Construction Exchange

1031 Construction Exchanges

Section 1031 of the Internal Revenue Code allows any US taxpayer to defer their capital gains taxes on the sale of real property so long as they meet certain criteria. There are a few different types of 1031 exchanges – forward exchanges, reverse exchanges, and construction exchanges. Read on to learn more about construction exchanges – how they operate and when they can be effectively utilized.

What is a Construction Exchange?

All 1031 exchanges have the same essential outcome – capital gains tax deferral. A construction exchange (aka a build-to-suit-exchange) differs from a forward or reverse exchange in that it allows you to construct improvements on your replacement property during your exchange. This can be especially beneficial for people who are having trouble finding the right replacement property. With a construction exchange, you can construct improvements to your replacement property before acquiring it to make it better suit your needs.

180-Day Deadline

A 1031 exchange offers many benefits – the greatest of which being capital gains tax deferral. In a typical straight-forward real estate sale, the seller is responsible for paying capital gains taxes on the sale of the property. This can add up to a hefty tax burden. 1031 exchanges allow you to defer these capital gains taxes so long as you reinvest your net proceeds from the sale into a like-kind replacement property. This keeps your money compounding over time in a continued investment.

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