The phrase "build to suit" is generally used to refer to a specific sort of transaction. This kind of build to suit exchange still allows you the tax deferment benefits of a standard 1031 exchange, but the complicated plan used will enable you to use funds from the sale of your property to enhance the property you will purchase, all while still deferring taxes.
Differing Types of 1031 Investments
A forward 1031 exchange is a straightforward 1031. A reverse exchange allows you to purchase the replacement property first. In this case, you can actually make enhancements on the bought property while still making an attempt to sell your original property. In both sorts of exchanges, the standard conditions and deadlines must be met.
Some concerns are that the property must be parked rather than held by you while improvements are being made. The title to the property must be held by what's known as an Exchange Accommodation Titleholder in the improvements for this to work in a 1031 exchange. If this is done in a wrong way, the 1031 can fail and you can owe capital gains taxes.
The parking arrangement must be made whether you are using a forward or reverse 1031. A Qualified Intermediary experienced in build to suit 1031 exchanges is mandatory to make certain the property is parked correctly and that the rest is in accordance with the rules so you don't risk the tax deferment.
A More Complex Tax Structure
While a build to suit exchange is the same as a regular exchange as far as the cut offs, the cost will be different and the structure will obviously be more complicated. The exchange will be pricier because of the complicated nature of it. Factors like depreciation recapture taxation benefits and the capital gain taxes that will be deferred are important to figure out before doing this type of exchange to make sure the additional cost will be worthwhile.
Differing Types of 1031 Investments
A forward 1031 exchange is a straightforward 1031. A reverse exchange allows you to purchase the replacement property first. In this case, you can actually make enhancements on the bought property while still making an attempt to sell your original property. In both sorts of exchanges, the standard conditions and deadlines must be met.
Some concerns are that the property must be parked rather than held by you while improvements are being made. The title to the property must be held by what's known as an Exchange Accommodation Titleholder in the improvements for this to work in a 1031 exchange. If this is done in a wrong way, the 1031 can fail and you can owe capital gains taxes.
The parking arrangement must be made whether you are using a forward or reverse 1031. A Qualified Intermediary experienced in build to suit 1031 exchanges is mandatory to make certain the property is parked correctly and that the rest is in accordance with the rules so you don't risk the tax deferment.
A More Complex Tax Structure
While a build to suit exchange is the same as a regular exchange as far as the cut offs, the cost will be different and the structure will obviously be more complicated. The exchange will be pricier because of the complicated nature of it. Factors like depreciation recapture taxation benefits and the capital gain taxes that will be deferred are important to figure out before doing this type of exchange to make sure the additional cost will be worthwhile.
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