Improvement 1031 Exchange (Build-to-Suit)

Use Exchange Funds to Construct or Improve Your Replacement Property

Our Nationwide Improvement 1031 Exchange Services

Full-Service Construction Exchange Coordination

Complete oversight

An easy and hassle-free exchange process

Advice from Tax specialists

Improvement 1031 exchanges combine the mechanics of a reverse exchange with active construction or improvements happening on the replacement property during the 180-day window. The EAT holds title while the work is being done. Universal Pacific 1031 handles the EAT formation, the construction payment disbursements from your exchange funds, the timeline tracking of improvements counted toward like-kind value, and the final title transfer once the work is complete.

Customized for Your Build or Renovation

Custom strategies

Our personalized service solutions

Customized 1031 exchange solutions

Every build-to-suit exchange has a different construction profile: ground-up new construction, major renovation of an acquired property, leasehold improvements on commercial space. Universal Pacific 1031 tailors the structure to your specific project. We work with your contractor, lender, and CPA to make sure the funds are released according to the construction schedule and that the improvements completed by day 180 are properly counted toward the like-kind value requirement.

Improvement 1031 Exchange for Investors Building Equity

Our 1031 service for Title and Escrow Concierge is a tailored approach, acknowledging the different needs of your business that generic solutions cannot fulfil, so we provide comprehensive management of the 1031 exchange timeline and process – from the identifying potential replacement properties to making sure you meet all your compliance needs until the finalization of the transaction.

For title and escrow companies, 1031 exchanges are just one part of managing a sophisticated real estate market. By partnering with our concierge service, your company gains an ally with deep expertise in the 1031 exchange process, 1031 exchange timeline and a comprehensive understanding of the real estate market and IRS regulations.

Compliance with Revenue Procedure 2000-37

Improvement exchanges qualify under the same safe harbor as reverse exchanges — Revenue Procedure 2000-37. The EAT must hold title throughout the construction period. Only the value of the property plus improvements completed by day 180 counts toward the exchange. Any work completed after day 180 doesn’t count. We monitor the construction milestones and coordinate closing on day 180 to maximize the qualifying value.

Funding Construction Through the EAT

Funding construction inside a 1031 exchange requires precise disbursement timing. Your exchange funds are held in a segregated account by the qualified intermediary. As the contractor invoices, we release payments through the EAT, which holds title to the replacement property. This keeps the structure compliant with the IRS prohibition on the exchanger having constructive receipt of the funds during the parking period.

How It Works

Tailored Reporting

Dedicated Account Management

Escrow Reconciliation Services

After the initial consultation, we map the full construction schedule against the 180-day deadline. You receive payment disbursement schedules, lien-release tracking, and progress reports tied to each construction milestone. At day 180, the EAT transfers the improved property to you, and your CPA receives the documentation needed for IRS Form 8824.

FAQ

What is an Improvement 1031 Exchange?

An Improvement 1031 Exchange (also called a Build-to-Suit or Construction Exchange) lets investors use 1031 exchange proceeds to fund construction or improvements on a replacement property during the 180-day exchange period. The Exchange Accommodation Titleholder (EAT) holds title to the replacement property while improvements are being completed, then transfers the improved property to the investor at the end of the exchange.

How does a Build-to-Suit Exchange work?

The EAT acquires the replacement property using your exchange funds. During the 180-day window, construction or improvements happen on that property while the EAT holds title. You identify the relinquished property within 45 days, sell it within the same 180 days, and the EAT transfers the improved property to you at closing. The value of the property plus improvements completed before transfer counts toward the equal-or-greater-value 1031 requirement.

Can I use 1031 exchange funds for new construction?

Yes. Improvement Exchanges are specifically structured for new construction or major improvements. Funds from the sale of the relinquished property are held by the qualified intermediary and used to pay for construction costs as work progresses on the replacement property held by the EAT.

Can I do an Improvement Exchange on property I already own?

Generally no — the IRS treats improvements made to property you already own as taxable income, not part of the like-kind exchange. The Improvement Exchange structure requires the replacement property to be held by the EAT (not you) during the construction period. If the property you want to improve is already in your name, it falls outside the safe harbor.

How much does an Improvement 1031 Exchange cost?

Improvement Exchanges typically cost $7,000 to $12,000 in qualified intermediary and EAT fees — materially higher than a forward exchange because of the EAT structure, construction-period oversight, and additional closing coordination. Construction costs themselves are paid from your exchange funds and are separate from the QI/EAT fees.

What is the timeline for an Improvement Exchange?

The exchange must close within 180 days from the day the EAT acquires the replacement property. You have 45 days from that same day to identify the relinquished property. All construction or improvements counted toward the exchange value must be completed and the property transferred to you by day 180. Any work completed after day 180 doesn’t count toward the like-kind value.

What kinds of improvements qualify?

New construction, additions, major renovations, leasehold improvements, and capital improvements all qualify. The improvements must be made on the EAT-held replacement property during the 180-day window. Cosmetic or minor repairs typically don’t add enough value to justify the structure’s cost.

What happens if construction isn’t finished by the 180-day deadline?

Only the value of the property plus improvements completed by day 180 counts toward the like-kind requirement. If construction is incomplete and the total value (land plus finished improvements) is less than the relinquished property’s sale price, the shortfall becomes taxable boot. Planning a realistic construction schedule before starting the exchange is critical.

What is the role of the EAT in an Improvement Exchange?

The Exchange Accommodation Titleholder is a separate legal entity (usually a single-member LLC formed by your qualified intermediary) that takes title to the replacement property during the construction period. The IRS requires this under Revenue Procedure 2000-37’s safe harbor because a taxpayer can’t both hold title and have improvements counted as part of a 1031 exchange.

How is an Improvement Exchange different from a regular 1031 Exchange?

In a regular forward 1031 exchange, you buy a replacement property in its current condition. In an Improvement Exchange, the EAT holds the replacement property while construction or improvements happen, and the improved property is then transferred to you. This lets investors trade up into a property worth more than the relinquished property’s sale price, with the construction cost included in the deferral.