Can I 1031 sales proceeds for new build on already owned lot?

Question

I'm selling an investment property and want to know if the proceeds can be used towards a new build on an empty lot I already own. Does this type of procedure qualify for the capital gains exemption?

Dave Foster · Answer

@Bryan Leon, the quick answer is no. You cannot exchange into improvements on property you own. There is a process that is extremely hairy and complicated called a lease hold exchange where you sell your property to a related party and then lease it back after 180 days. And then while you are leasing it the improvements are made. Not for the faint of heart or the shallow of wallet. In the initial days of these we did quite a few. But each year the IRS has continued to shoe their dislike and distrust of the arrangement. And have continued to tighten the cranks. Theoritically possible. But lots of expensive moving parts with very little statutory guidance.

Jacob Sherman · Answer

i would consult with attorney and CPA for your specific scenario . the same thing may effect everyone differently pending their financial position

Robert Ellis · Answer

non owner occupied yes and higher value. you need an intermediary there are a lot of technicals

Kevin Sobilo · Answer

@Bryan Leon, these are questions you are best asking the 1031 intermediary you will use for the deal. They will know all the ins and outs thats what they do.

If I recall correctly this is possible, BUT you need to complete the build within the 1031 time period.

You also should ask them if its possible to do with a reverse 1031 exchange. If so, you may be able to buy the land and do the build first and then do the exchange afterwards. However, there may be issues to overcome as the property your building will be owned by an entity controlled by the 1031 intermediary. So, it won't be easy or simple and may not even be possible but worth asking about.

Bryan Leon · Answer

Great responses; thank you all.

Can I 1031 sales proceeds for new build on already owned lot?

Can I 1031 sales proceeds for new build on already owned lot?

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