Page 9 - Old Republic Title Exchange

OLD REPUBLIC EXCHANGE GIVES YOU
4 WAYS TO EXCHANGE

4. The Improvement Exchange
An improvement or construction exchange, aka a build-to-
suit exchange, occurs when the exchanger wishes to use
exchange proceeds to make capital improvements to the
replacement property. However, improvements made to land
already owned by the exchanger will not qualify as like-kind
replacement property. Additionally, exchange proceeds
cannot be used to pre-pay for improvements to be made
after the exchange. Because of these rules, exchangers
are required to use an accommodation parking structure
– as used in reverse exchanges – and as permitted under
Revenue Procedure 2000-37 whereby an EAT acquires the
replacement property and holds title while the improvements
are made.

The improvement exchange can occur in the context of
a forward or reverse exchange. In the context of forward
exchange, the exchanger sells the relinquished property
using a QI. The exchanger has 45 days after the closing
to identify both the replacement property and the
improvements to be made. The identification requirement is
satisfied if a legal description is provided for the underlying
land and as many details as practical are provided regarding
construction of the improvements when the identification
is made. The exchanger enters into a purchase and sale
agreement to acquire the replacement property along with
a QEAA with an Exchange Accommodation Titleholder. The
Exchange Accommodation Titleholder agrees to acquire
title to the Replacement property and park title while the
improvements are being made. The EAT uses the exchange
proceeds to acquire the replacement property and pay for
the identified improvements. Within 180 days after the sale
of the relinquished property or the exchanger’s tax filing
date, whichever is earlier, the exchanger must acquire the
newly improved replacement property. It is critical that the
exchanger receives property that is substantially the same
as the improvements and property identified. Additionally,
only proceeds spent on improvements that are substantially
complete within the exchange period will qualify for non-
recognition.

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