Search:

2 Ways To Get The Custom-Built 1031-Property Of Your Dreams

An essential fact in regard to 1031 exchanges is that you CANNOT use your 1031 proceeds to make improvements on property you own already. This is a frequent stumbling block for inexperienced real estate investors. To qualify for deferment of capital gains taxes, the replacement property must be of LIKE KIND with the property it is replacing. For this reason, the property you purchase must constitute real estate valued at or above the value of the property sold. An improvement that is incomplete represents a contract for service, which constitutes personal property but not real property. Due to the regulation that a property purchased as a replacement in a 1031 exchange has to be of like kind and equivalent value with the property sold at the time of closing, it is, at times, difficult for an investor to locate one that fulfills these requirements but also meets his or her personal specifications.

So, is there a way to the property of your dreams out of a 1031 exchange? There are two main methods by which you can go about acquiring a build-to-suit property that measures up to your wants and needs as well as complying with the accounting requirements necessary for a like-kind exchange.

The first option is to perform a 'poor man's Build-to-Suit,' in which you, as the purchaser, ask the seller to make particular improvements on a piece of property to increase its value prior to closing . To illustrate: if you relinquished a property worth one hundred thousand dollars, and you were looking at a replacement property valued at $10,000, the seller of the property could make ninety thousand dollars' of improvements to raise the value of the piece of property. These completed renovations would represent real estate. You could then buy the piece of property for one hundred thousand dollars, fulfilling the requirement that the two properties be of equivalent value. the majority of sellers, however, will not be very enthusiastic to construct the improvements you requested so that you can make an exchange.

In the second, likelier scenario a qualified intermediary who is holding your money can buy the replacement property and take title to it in a limited liability company owned by the intermediary. The intermediary would then use the remaining proceeds to build the necessary renovations on the piece of property. Upon completion, the intermediary transfers the replacement property to you, allowing you to complete the exchange process.

Back to the ten thousand dollar replacement property: the intermediary who was holding your funds would purchase it for the asking price and would make the required modifications using the remainder of the proceeds, transferring the replacement property to you when the value of the property is sufficient to constitute a like kind exchange.

Though a build-to-suit exchange can help you acquire the replacement property that is right for you, it is essential to be attentive to the span of time required for the construction of necessary improvements. You only have 180 days in which to bring your exchange to completion, so you need to be realistic about what work can actually be finished in this period. Keep in mind that a renovation is only considered to be real estate when it is done, so renovation in progress doesn't increase the property's value. Though you may or may not not be able to modify your replacement property as extensively as you might want, 180 days is ample time to finish significant improvements, and to bring your replacement property much closer to your ideal.

Article Source: http://www.articleresourceindex.com

Many Property Investors Will Choose To Hire A 1031 Exchange Company To Assist In The Facilitation Of Their 1031 Tax Deferred Exchanges. Visit www.Top1031Exchange.com For More Information.

Please Rate this Article

Not yet Rated

Click the XML Icon Above to Receive Taxes Articles Via RSS!

Additional Articles From - Home | Finance | Taxes

Unique Article Wizard - Submit your Article, have it "Made Unique" hundreds of times and sent to thousands of Directories! It's Like a Backlink Tidalwave!!

	Print This Article
	Post Comment
	Add To Favorites
	Email to Friends
	Ezine Ready

Submit Articles
Member Login
Top Authors
Most Popular Articles
Submission Guidelines
Ezine Notifications
Article RSS Feeds

New Stuff
About Us
Network Blog
Backlink Partner
Link to Us
Contact Us
Privacy Policy
Terms of Service

Your Ad Here

ArticleResourceIndex.com » Copyright © 2007 - Part of the Total WebPro Solutions Network
Terms of Service | Submission Guidelines | Contact Us | Link to Us| Privacy Policy | About Us