Improvement/Construction Exchange

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Is there a way that an exchanger can sell relinquished property and build, or substantially improve, the replacement property? Absolutely, through the use of an Improvement or Construction Exchange.

Remember, once closing occurs and title passes to the exchanger, the exchange is over and any improvements or construction work cannot be paid for with tax-deferred funds. The way around this dilemma is through the use of an concrete pour.jpgExchange Accommodation Titleholder ("EAT"). Similar to the Reverse Exchange, a single-purpose entity such as an LLC is created by the Qualified Intermediary to function as the EAT.  Its sole purpose is to hold title to the new property during the construction/improvement period. If completed within the 180-day period allowed in the exchange regulations, this type of exchange can qualify for tax deferred treatment. If the construction or improvements will take longer than 180 days, other provisions can be made to accommodate such an exchange. (See "Parking Exchange.")