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$650 covers you for one relinquished property and one replacement property.

An additional $175 will be charged for each replacement property purchased afterwards.

There's a $30 wire fee for outgoing wires.

That's it.

AND we pay interest on the funds while we
hold them.

What about Build-to-Suit Exchanges?

The build-to-suit exchange (also referred to as a construction or improvement exchange) is a tax deferred exchange in which the Qualified Intermediary acquires fee ownership to the replacement property and makes improvements to it [Treas. Reg. 1.1031 (k)-1(e)]. Once the necessary improvements are completed within the exchange time period (180 days), ownership is then transferred to the Exchanger and the exchange transaction is completed. This exchange variation gives investors more flexibility, thereby providing the opportunity to either improve an existing property or even construct a new replacement property.

An Exchanger should consider a build-to-suit exchange when the aggregate value, debt or equity of the replacement property will not result in complete deferral of the capital gain tax. This situation arises when the purchase of replacement properties results in a decrease in debt or equity. Either exchange proceeds or additional debt can be used to pay for the replacement properties improvements. If additional debt is used for improvements, loan documents should be executed by the Qualified Intermediary.

The regulations require that identification, made no later than the 45th day of the exchange period, specify as much detail...regarding construction of the improvements as is practicable at the time the identification is made [Treas. Reg. 1.1031(k)-1(e)(2)(I).]. Typically, a Qualified Intermediary will request the legal description of the property along with floor plans and specifications for new construction or a complete description of the renovation.

As always, advance planning is essential. Due to the weather, local government permits and approvals, normal construction delays and labor problems, investors can be limited in the amount of improvements which can be constructed within the exchange period. The tax code provides only 180 days from closing on the relinquished property to acquire replacement property and this deadline applies to build-to-suit exchanges as well. However, not all improvements must be completed within the 180 day period. For an Exchanger to receive complete deferral of the capital gains tax, they must receive title to the replacement property which consumed all of the proceeds in the exchange account and has a fair market value of equal (or greater than) the relinquished property.


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