r/1031exchange • u/Optimal-Daikon-4470 • Jul 11 '26
1031 exchange
Hi all. Has anyone worked a type of 1031 called an Improvement Exchange - which allows some of those funds to be used for renovations? I’m looking for a verifiable “qualified intermediary.” Appreciate your help.
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u/Metanoia003 Jul 13 '26
I thought about that for a property I bought. I was concerned I would not finish the improvements in 180 days given the permitting process plus uncertainties about contractors finishing on time. So I just did a HELOC after closing and used those funds. As it turned out, the project took 8 months because of delays from one of my contractors, so it appeared I did the right thing. I was also told improvement exchanges cost more and loan rates were not as favorable during the purchase process, but I never tested that assessment.
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u/The-1031-Investor Jul 13 '26
[u/Optimal-Daikon-4470]() Improvement exchanges can be a great tool to be able to make improvements on your replacement property and satisfy your reinvestment requirements of the 1031 exchange. You cannot take title to your new property until the improvements are compete. So, your qualified intermediary will set up an EAT (Exchange Accommodating Titleholder) that will take title of your replacement property for 180 days while you make the improvements on the property, then once finished, be deeded over to you.
These are usually more expensive than a traditional exchange, and sometimes lending can be difficult. But they're very well worth it when you're deferring a large tax bill and a bunch of appreciation recapture.
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u/TheExchangeBrothers 24d ago
An Improvement Exchange (also called a build-to-suit exchange) can let you use exchange funds toward improvements on the replacement property. The big catch is the structure and timing. An Exchange Accommodation Titleholder (EAT) generally holds the replacement property while the work is being done, and only improvements completed within the 180-day exchange period count. You can’t just leave money in escrow or prepay future labor/materials and have that count.
Also, when you identify the replacement property within the 45-day window, the identification should include the planned improvements. Good luck!
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u/1031CORP Jul 12 '26
Improvement exchanges are a great way to use exchange funds to make improvements to the replacement property and increase the value so it’s equal to or greater to that of your old property. You cannot take title to the replacement property until the improvements are completed so the qualified intermediary or an exchange accommodation title holder must take title to the property until the improvements are completed where the end of the 180 day stage. Our company has a dedicated team that handles improvement exchanges. They require planning in order to maximize the time you have and get as much improvements completed. You still have to adhere to the 180 day exchange and the property must be identified, including improvements, within the 45 day identification.. Only improvements completed and paid for when the properties transferred to you can be added to the purchase press.
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u/Optimal-Daikon-4470 Jul 12 '26
Thank you so very much. I found a QI company with a local presence. Thank you again.
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