Can I do an improvement tax exchange with a property I’m building? What must the home’s value be? I’ll cover that and more in today’s overview of this type of tax exchange.
Some of you have expressed interest in or have had questions about improvement exchanges in
the way of taxes. In light of this fact, today I’ll help you gain a richer understanding of how this
process works.
the way of taxes. In light of this fact, today I’ll help you gain a richer understanding of how this
process works.
One such question I’ve received is, “Can I do an exchange while I build a new home?” As
a matter of fact, that’s precisely what these types of exchanges are for. For example, say you
sold a home for $600,000, and you subsequently bought a new home for $450,000. Then, during
the 45-day identification period, you decide that, because you have additional land you can build
on, you’d like to do so. Further, let’s say the additional unit will cost another $100,000, bringing your
purchase total to $550,000.
a matter of fact, that’s precisely what these types of exchanges are for. For example, say you
sold a home for $600,000, and you subsequently bought a new home for $450,000. Then, during
the 45-day identification period, you decide that, because you have additional land you can build
on, you’d like to do so. Further, let’s say the additional unit will cost another $100,000, bringing your
purchase total to $550,000.
Unfortunately, you’d still be short of the requirement for an improvement tax exchange. If you’re
selling a home and would like to make this exchange, the replacement property that you
purchase must be of equal or greater value to the one you’re selling. One thing of
note, though: Having two units will amount to $900,000 as long as you close exchange escrow
(not to be confused with traditional escrow) in 180 days.
selling a home and would like to make this exchange, the replacement property that you
purchase must be of equal or greater value to the one you’re selling. One thing of
note, though: Having two units will amount to $900,000 as long as you close exchange escrow
(not to be confused with traditional escrow) in 180 days.
As you make your way through the process, the exchange accommodation titleholder will hold
the title while you’re conducting construction improvement on the property and, after that 180-day
window is up, it will close. There doesn’t need to be a certificate of occupancy on the property
nor does it have to be completed; the only stipulation is that its value has risen.
the title while you’re conducting construction improvement on the property and, after that 180-day
window is up, it will close. There doesn’t need to be a certificate of occupancy on the property
nor does it have to be completed; the only stipulation is that its value has risen.
The magic number for the home’s value is $600,000 or more—if you can meet or exceed
this, you can bank on your ability to carry out an improvement tax exchange. Although there’s
a little more intricacy and finesse involved than with a 1031 exchange, this is a totally feasible option
for a range of buyer types, such as someone looking to convert a commercial office building into a
medical office building.
this, you can bank on your ability to carry out an improvement tax exchange. Although there’s
a little more intricacy and finesse involved than with a 1031 exchange, this is a totally feasible option
for a range of buyer types, such as someone looking to convert a commercial office building into a
medical office building.
If the prospect of making an improvement tax exchange on property intrigues you or you have further questions related to this, I welcome you to give me a call at 626-643-7090 or email me at ReoAgent@ShawnLuong.com. I’d be happy to sit down and speak with you!
Can I purchase an empty lot n construct some units on it n may take a year to finish the construction under the 1031 Exchange?
ReplyDeleteI am interested REOs, Short Sales,Probate Sales etc.----Have bought them in the So.Central LA area for cheap.
They turned out to be very good investments.
Still looking for empty lot in that area to built AFFORDABLE HOUSING with 55 yrs contract with LA Housing Dept.
Lost a deal for 11 units in that area with only 5,500 sqft lot.
Sorry for the late reply, as the question went to the spam mailbox of my gmail account. Please use shawn@shawnluong.com for future correspondence. For your question of improvement tax exchange, the key is to buy an empty lot and to have the lot entitled to build the units with the city planning department providing you in writing that you are allowed to do so and to have the building plans submitted to city for plan check, then the ARV can be used to provide to the accommodator as the new basis of the upleg. 180 days are sufficient to get everything started. Last, but not least is to find an exchange company knowledgeable in this particular version of the 1031 exchange rules.
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