Deferred 1031 Exchange - Property question

[BulldogTom]

Taxpayer has a rental house (never personal use, always a rental for entire time he owned the home, over 10 years) that he wants to exchange out of. He owns a piece of vacant land that he would like to put a duplex on to rent. Can he exchange the rental home for the duplex to be built on the land he owns?

If the answer to above is yes, does construction in progress extend the time for the exchange to be completed (the 180 day requirement that the replacement property be purchased)?

Can the taxpayer, while waiting for the rental unit to sell, use his own money to start the contractor building the duplex? Like a parker transaction? He has the resources to build the duplex, but he wants to get the exchange treatment on the sale of the old rental.

Thanks in advance for your assistance.

Tom

Hollister, CA

[jklcpa]

The quick answer is that construction is allowed as part of an exchange, but it can't be built on land already owned, and the construction does not extend the time to complete the exchange. The title to the land and constructed building would have to be held by the exchange intermediary. I don't have time right now to provide the cite, but here is something from the Federation of Exchange Accomodators site's FAQs page: The full link http://www.1031.org/about1031/faq.htm

Q - Can the proceeds from the relinquished property be used to make improvements to the replacement property?

Yes. This is known as a Build-to-Suit or Construction or Improvement Exchange. It is similar in concept to a reverse exchange. The taxpayer is not permitted to build on property she already owns. Therefore, an unrelated party or parking entity must take title to the replacement property, make the improvements, and convey title to the taxpayer before the end of the exchange period.

[Mr. Pencil]

Can he exchange the rental home for the duplex to be built on the land he owns?

does construction in progress extend the time for the exchange to be completed (the 180 day requirement

Can the taxpayer, while waiting for the rental unit to sell, use his own money to start the contractor building the duplex?

Sorry, the answer is no all the way down. He can't exchange into improvements on property he already owns. Newly constructed property must fit into the same 45 and 180 day limits. He can not use exchange proceeds to reimburse himself for work he has already paid for (although he might be able to arrange something similar through a facilitator).