Florida Exchange Intermediary, Inc.

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New Construction in Exchange

Rules for using new construction as replacement property in a 1031exchange under the Safe Harbor Rules:

4.       If the intermediary receives title to the lot and builds a building on the lot and deeds title to the taxpayer (to complete the exchange) of real property consisting of land and building, then the fair market value of land and building at the time the taxpayer receives title can qualify as replacement property.

5.       If the exchange proceeds are insufficient to build the building, the intermediary can borrow money to fund the construction. The taxpayer can guarantee the loan and use his credit to obtain the loan, but the intermediary must have title to the real property and mortgage the real property to secure the loan and hold title to the real property while it is being improved.

6.      

  The value for exchange purposes is the value the real property has at the time you receive title.  To avoid all tax, the cash proceeds received from the disposition plus an amount equal to the mortgages paid off or assumed by the buyer must be spent by the intermediary to acquire the lot and construct the improvements in place at the time the taxpayer receives title to the property