Improvement Exchange Planning

An improvement exchange, also called a construction exchange or build-to-suit exchange, allows an investor to use exchange proceeds to fund improvements to a replacement property, or to construct an entirely new building, rather than acquiring a property in its as-is condition. This service supports Columbus, OH investors who cannot find an existing property that fully matches their needs but who have identified land or an underimproved property that could be built out or renovated using exchange funds. Because the investor cannot hold title to a property while an Exchange Accommodation Titleholder makes improvements on the investor's behalf, an improvement exchange typically relies on the same parking arrangement used in reverse exchanges, structured under the IRS safe harbor guidance.

Why Improvements Must Be Completed Within the Exchange Period

The central constraint of an improvement exchange is that only improvements actually completed and in place by the time the investor takes title, no later than one hundred eighty days after the relinquished property sale, count toward satisfying the exchange's value requirements. Construction that is only partially complete at that point still counts based on the value added as of the closing date, but planned future construction that has not yet occurred cannot be counted at all, which means an investor relying on an improvement exchange to reach full value parity with the relinquished property needs a construction timeline that realistically fits within the exchange period. We coordinate closely with contractors, architects, and the Exchange Accommodation Titleholder to build a construction schedule around the one hundred eighty day deadline from the outset, rather than discovering a timeline conflict partway through the project.

We also help Columbus, OH investors think through which types of construction qualify, since only improvements to real property, such as structural work, site development, and permanently affixed building components, count toward the exchange, while personal property, movable equipment, and certain trade fixtures do not qualify for like-kind treatment under current law. Funds held for improvement construction must remain in the Qualified Intermediary's qualified escrow arrangement and are disbursed against documented construction draws, similar to how a construction lender would manage a draw schedule, which requires coordination among the Qualified Intermediary, the EAT, the contractor, and often a lender providing supplemental construction financing. Ohio's graduated individual income tax structure applies once the improved replacement property begins generating income after the exchange closes, and we discuss that ongoing tax picture separately from the federal and Ohio capital gains deferral the completed improvement exchange provides.

Coordinating Contractors, Lenders, and the Exchange Timeline

An improvement exchange typically requires more parties working in sync than any other exchange structure, since the Exchange Accommodation Titleholder, the Qualified Intermediary, the contractor, an architect or engineer where applicable, and often a construction lender all need to operate against the same one hundred eighty day deadline without slipping. We help Columbus, OH investors build a realistic construction schedule before committing to an improvement exchange strategy, working backward from the closing deadline to confirm that permitting, material lead times, and labor availability leave enough buffer for unexpected delays, since a delay that would be a minor inconvenience on a normal construction project can jeopardize the entire tax deferral in an improvement exchange.

We also help investors weigh an improvement exchange against simply identifying an existing property that already meets most of their needs, since the added cost, complexity, and deadline risk of a construction-based exchange only make sense when the value created by the improvements meaningfully closes a gap that could not be filled by acquiring a property in its current condition. Where an investor is improving land identified through our land replacement identification process, we coordinate that identification and the improvement planning together from the outset, so the construction budget, the qualified escrow draw schedule, and the closing deadline are all aligned rather than addressed as separate workstreams. We also review contractor selection carefully, since a contractor unfamiliar with the documentation requirements of a qualified escrow draw schedule can inadvertently create delays that have nothing to do with the physical construction work itself but still put the exchange deadline at risk.