Improvement Exchange
Exchange proceeds are used to build or improve the replacement property before you take it back.
Definition
An improvement (or "construction" / "build-to-suit") exchange lets you use exchange funds not just to buy a replacement property but to improve it. A titleholder holds the property while improvements are made with your proceeds; you then receive the improved property to complete the exchange. All the work and the transfer must happen within the 180-day window, and the improvements must be in place — paying for future construction doesn’t count.
Why it matters
Useful when the ideal replacement costs less than what you sold and you’d otherwise have taxable boot — the improvements soak up the extra value. But the 180-day construction limit is tight, so plan the scope realistically.
Related terms
General education — not tax or legal advice. This explains how §1031 exchanges work in general terms and uses simplified assumptions. Rules and tax rates change and your situation is specific. Talk to a qualified CPA or tax attorney before you rely on any of it. See our full terms & legal notice.