Construction Exchanges Planning Points

1. Consult with your tax advisors prior to entering into a construction exchange. You should discuss whether the construction exchange should be structured as a reverse construction exchange (where you buy and build before selling your relinquished property), a forward construction exchange (where you sell your relinquished property, buy replacement through a parking arrangement and have the improvements built) and whether the exchange will comply with the safe harbor provisions.

2. Instruct your attorney or real estate broker to insert a 1031 cooperation clause in the purchase and sale agreement. The cooperation clauses should be in the agreements for the sale of the relinquished property and the purchase of the replacement property. Contact us for sample cooperation language.

3. Select a Qualified Intermediary and send the purchase and sale agreement for each property to the Qualified Intermediary at least one week prior to the closing. The Qualified Intermediary should have the requisite knowledge and ability to facilitate a construction exchange. The tax professionals at All States 1031 Exchange have been at the forefront of structuring and implementing both safe harbor and non-safe harbor exchanges. The one week period will allow All States 1031 Exchange enough time to form the EAT, draft the appropriate documents, and discuss the mechanics of the exchange with your tax advisors, lender and the closing agent.

4. Pay attention to the 45/180 day deadlines as failure to observe these timeframes will invalidate a safe harbor exchange. Legitimate Qualified Intermediaries will not backdate documents to accommodate late transactions.

5. To completely avoid tax on your exchange, you must apply all the equity from the property being sold to the purchase of the new property, and the new property must be of equal or greater value.

Call the knowledgeable exchange professionals at All States 1031 at
1-877-395-1031 for a complimentary consultation regarding your specific investment objectives.