Improvement 1031 Exchange Services
Transform your investment vision into reality. Use exchange funds to build, renovate, or improve your replacement property while deferring all capital gains taxes.
Why Choose an Improvement Exchange?
Create Your Perfect Property
Can't find exactly what you want? Build it! Use tax-deferred exchange funds to create or renovate your ideal investment property.
Maximize Property Value
Add significant value through improvements while using pre-tax dollars. Your enhanced property starts generating better returns immediately.
Full Tax Deferral
Defer 100% of capital gains taxes while building equity through improvements. The enhanced value becomes part of your tax-deferred investment.
How Improvement Exchanges Work
Key Requirement: 180-Day Completion
All improvements must be completed within the 180-day exchange period. The value of completed improvements counts toward your replacement property value for tax deferral purposes.
Sell Your Property
Close on your relinquished property with National 1031 Center as your QI. We hold all proceeds in secure, segregated accounts.
EAT Acquires Property
Our Exchange Accommodation Titleholder (EAT) purchases the property you want to improve. This can be raw land, an existing building, or any improvable real estate.
Note: The EAT structure is required because you can't use exchange funds on property you already own.
Construction Begins
Your contractors begin improvements immediately. Exchange funds pay for construction as work progresses. You manage the project while EAT holds title.
- New construction or major renovations
- Only capital improvements qualify
- Must be completed within 180 days
Transfer at Day 180
On or before day 180, the EAT transfers the improved property to you. The total of property cost plus completed improvements must equal or exceed your sale price for full tax deferral.
What Improvements Qualify?
Qualifying Improvements
- ✓ New construction on vacant land
- ✓ Building additions and expansions
- ✓ Major systems replacement (HVAC, electrical, plumbing)
- ✓ Structural modifications
- ✓ Roof replacement
- ✓ Site improvements (parking, landscaping)
- ✓ Tenant improvements for new leases
- ✓ ADA compliance upgrades
- ✓ Environmental remediation
- ✓ Converting property to different use
Non-Qualifying Items
- ✗ Routine maintenance and repairs
- ✗ Cosmetic improvements only
- ✗ Moveable equipment and furniture
- ✗ Inventory or supplies
- ✗ Soft costs (plans, permits, fees)*
- ✗ Services or labor not yet performed
- ✗ Interest on construction loans
- ✗ Marketing or leasing costs
*Some soft costs may qualify if directly related to construction
Important: Completion Requirement
Only improvements that are completed and in place by day 180 count toward your exchange value. Work in progress doesn't qualify. Plan your construction timeline carefully!
Real Improvement Exchange Examples
Ground-Up Development
Scenario: Investor sells apartment complex for $3 million
Replacement: Vacant land for $800,000
Improvements: Build 10,000 sq ft retail center
Construction Cost: $2.2 million
Timeline: 5 months to complete
Result: Full tax deferral on $3 million gain, brand new income property
Value-Add Renovation
Scenario: Sells office building for $2 million
Replacement: Distressed warehouse for $1.2 million
Improvements: Convert to flex space
Renovation Cost: $800,000
Timeline: 4 months to complete
Result: Modern flex space worth $2.5 million, all taxes deferred
Residential Development
Scenario: Sells rental portfolio for $5 million
Replacement: Entitled land for $1.5 million
Improvements: Build 4 luxury rentals
Construction Cost: $3.5 million
Timeline: 6 months (prioritized units)
Result: New construction rentals, higher rents, full tax deferral
Adaptive Reuse
Scenario: Sells strip mall for $4 million
Replacement: Former school for $1.8 million
Improvements: Convert to apartments
Conversion Cost: $2.2 million
Timeline: 6 months to complete
Result: 40-unit apartment complex, unique property, taxes deferred
Critical Timeline Management
The 180-Day Challenge
Day 1-30: Finalize plans, permits, and contractor selection
Day 31-150: Active construction phase with progress monitoring
Day 151-180: Completion, inspections, and property transfer
Success Strategies
- • Have plans and permits ready before closing
- • Use experienced contractors with completion bonds
- • Build in 30-day buffer for delays
- • Consider phased completion if needed
- • Regular progress monitoring and documentation
- • Weather contingency planning
Common Pitfalls to Avoid
- ⚠️ Starting without approved plans and permits
- ⚠️ Underestimating construction timelines
- ⚠️ Not having contractor agreements in place
- ⚠️ Scope creep during construction
- ⚠️ Weather delays without contingency
- ⚠️ Inspection and approval delays
Investment Considerations
Exchange Costs
Project Considerations
- • Construction loan interest during build
- • Insurance during construction
- • Project management costs
- • Inspection and permit fees
- • Contingency reserve (10-15%)
- • Professional fees (architect, engineer)
Value Creation Opportunity
While improvement exchanges cost more than standard exchanges, they offer unique advantages:
- ✓ Create exactly what the market needs
- ✓ Build immediate equity through improvements
- ✓ Use pre-tax dollars for construction
- ✓ Higher rents from new/renovated space
- ✓ Depreciation benefits on new improvements
Improvement Exchange FAQs
What happens if construction isn't finished by day 180?
Only completed improvements count toward your exchange value. If total property cost plus completed improvements is less than your sale price, you'll owe taxes on the difference. Plan conservatively!
Can I act as my own general contractor?
Yes, but you cannot pay yourself for labor. You can manage the project and hire subcontractors. Only actual costs paid to third parties qualify as improvements.
Do architectural plans and permits count as improvements?
Generally no. Soft costs like plans, permits, and fees typically don't qualify unless they're directly allocable to the physical improvements. Focus on hard construction costs.
Can I do both a reverse and improvement exchange?
Yes! This combination lets you secure the property first and then improve it. The complexity and costs increase, but it can be perfect for competitive markets or unique opportunities.
How are construction draws handled?
The QI typically pays contractors directly from exchange funds based on your approval of completed work. This ensures proper documentation and that funds are used only for qualifying improvements.
Ready to Build Your Vision?
Transform your investment dreams into reality with tax-deferred exchange funds.
Our Improvement Exchange Services
Have a project in mind? Call us: (877) 483-0427