Build to Suit or Construction Exchange involves the acquisition and construction of property within the Exchange period. Many times the client will wish to build real estate improvements, such as a building, or tangible business assets, such as rail cars rather than purchasing an existing asset. This might include a specialized building or piece of equipment that may not already exist, or it may be constructed less expensively than if purchased outright.
You are able to defer income taxes on gains from the sale of property. You can build and receive exactly what they want in the exchange. Lenders are increasingly familiar with build to suit exchanges and are open to treating a construction project as an exchange, especially since they know you will have more cash due to reduced taxes. You will work closely with the Intermediary and the contractor to make sure that the construction deadlines are met.
The number one reason why exchanges fail in the first 45 days is that the client is not satisfied with the kind of property that is available. Many clients would continue with an exchange if they could build exactly what they want, even it is on their own property. Generally, if improvements are constructed on property already owned by the taxpayer, the transaction is unlikely to be treated as a 1031 Exchange. However, new rulings have opened the possibility of constructing improvements and still qualify as a tax deferred Exchange.
A build to suit Exchange is right for those who wish to build improvements to tangible equipment during the Exchange period and reduce or eliminate income taxes on the gain from their sales of similar assets. This may be used to build a unique asset to simply obtain more value for your exchange proceeds.
Call our office at (513) 412-3481 or toll free at (800) 427-7212; our exchange coordinators are ready to discuss whether this type of exchange is right for you and how to get started. You may want to have your project details handy when we discuss your potential Build to Suit Exchange. These type of exchanges can be handled either as a purchase with construction after your initial sale or before the sale of your property.