Is it possible to 1031 into a Development Project?

[Will Gaston]

All:

Is it possible to 1031 into new construction or a development?

I have a 77k net from a 372k sales price on a property I just sold and wanted to see if it was possible to use that as a portion of monies required for a project that I am looking at.

I have a developer friend who has a contract on a parcel of land for 375k that he has yet to close on. He is planning to close on the land regardless and do something on his own but I've suggested that I contract him as my builder and have him build me 12 units. He has a great relationship with his bank and he can finance the build via his bank if I put a down payment of 5% (125k on the final price of 2.5MM.) I would like to use my 77k as part of the 125k required.

Is this something that I could 1031 into? If so, do you have any recommendations on how to structure this?

If not, what if I were to purchase to purchase the land directly from him?

CC: @Dave Foster

[Dave Foster]

@Will Gaston, Good new - Bad news!!!

Good news - If you were to take title to that land directly it would work.  The valuation is slightly more than you sold so that works.  And as long as your intent was not to simply build and resell it would make a fine 1031.  

Bad news - But you got a bigger problem.  It sounds like you closed on your sale already.  If so and if the Qi for the 1031 was not in place prior to the sale you cannot do a 1031 now.  There must be documents for the 1031 as part of the closing.  And you cannot touch the proceeds from the sale.