An improvement exchange is a 1031 exchange in which proceeds fund construction or improvements on the replacement property.
An improvement exchange, sometimes called a build-to-suit or construction exchange, lets an investor use exchange funds to build on or improve property. Typically an exchange accommodation titleholder holds the replacement property while the work is done. Only improvements completed by the end of the 180-day period, and in place at closing, count toward the exchange. Because construction timelines are hard to predict, this is a complex strategy that requires an experienced qualified intermediary and tax advisor.