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 Kinds of 1031 Investments

A forward 1031 exchange is a straightforward 1031. A reverse exchange lets you purchase the replacement property first. In this example, you can actually make enhancements on the purchased property while still trying to sell your original property. In both kinds of exchanges, the normal conditions and cut offs 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 More Complex Tax Structure

While a build to suit exchange is the same as a regular exchange as far as the deadlines, the price will be different and the structure will always be more difficult. The exchange will be costlier thanks to the difficult nature of it. Things like depreciation recapture tax breaks and the capital gain taxes that’ll be deferred are vital to work out before doing this kind of exchange to make certain the extra cost will be worth it.

Discover more about the proper way to find the right 1031 investment property and the way to manage transactions involving NNN properties by going to 1031investmentopportunity.com today.

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