Did you know you can use tax-free dollars in your exchange account to pay for improvements or construction on the property you buy? You can, and all the money you spend to improve the property is counted dollar-for-dollar towards the purchase price of the property you purchase!
To fully defer your taxes, 1031 regulations require that you buy a new replacement property worth at least the same value as the property you sold. So, for example, let's say you sell a $100,000 investment property to begin your exchange, and then buy a new $80,000 investment property as your 1031 replacement property. Since you're short $20,000, you can spend $20,000 on improvements to the property. These improvements would count dollar-for-dollar towards the purchase price of your replacement property, bringing your total acquisition cost up to $100,000 which would satisfy the 1031 regulations!
These are simplified explanations and there are potential pitfalls to look out for, so please contact our Improvement Exchange Department by phone at (866) 944-1031 or schedule a consultation with us for a comprehensive recommendation for your particular situation.
Additionally, fees for improvement exchanges are $5000, so unless the improvements you are considering would cost more than $30,000 (where taxes would otherwise take roughly $10,000 if the improvements were not made or the funds were not reinvested) paying the additional fee may not make sense. You can also improve property you CURRENTLY OWN, but please call or schedule a consultation with us to go over the details if you are interested.