Build to suit is a term used to refer to a particular type of exchange. This sort of build to suit exchange still gives you the tax deferment advantages of the standard 1031 exchange, but the difficult strategy used will permit you to use funds from the sale of your property to improve the property you?ll purchase, all while still deferring taxes.
Differing Types of 1031 Investments
A forward 1031 exchange is a straightforward 1031. A reverse exchange permits you to purchase the replacement property first. In this situation, you can make improvements on the acquired property while still attempting to sell your original property. In both types of exchanges, the ordinary conditions and cut off dates 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?re employing a forward or reverse 1031. A Qualified Intermediary experienced in build to suit 1031 exchanges is necessary to make sure the property is parked properly and that everything else is in line with the guidelines so you do not risk the tax deferment.
A Difficult 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.
Learn more about how it?s possible to find the right 1031 investment property and how to manage transactions concerning NNN properties by visiting 1031investmentopportunity.com today.
Source: http://finance.redbright.co.za/understanding-build-to-suit-real-estate-exchanges/
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