I'm planning on building a rental property on a lot that I purchased already. Can I do a 1031 on a rental that I own to build another rental on the lot I own?
Hi Roy. Thank you for your question. Generally, a 1031 Exchange on a property you already own cannot be done. However, there is a way through a Leasehold Improvement Exchange. At least six months prior to starting the exchange, the land owned by the Exchanger is conveyed to a related party. The related party leases the land to the EAT for a period greater than 30 years and 180 days. The improvements are constructed by the EAT with funds provided from the sale of the relinquished or old property. Towards the end of the 180 calendar days the EAT’s interest in the ground lease and improvements are assigned to the Exchanger as the replacement property, completing the exchange requirements. The lessor or related party charges a fair market rent for at least two years to the Exchanger and terminates the ground lease at the end of the second year, satisfying the related party rules of Code Section 1031(f). A 30-year leasehold interest is recognized as real property.
@@US1031Exchange hello- I have a similar question. We currently have a home and would like to build an ADU above our garage. Can we apply 1031 exchange towards building an ADU? both properties are in California. Thank you for you knowledge
@@NA-vf3zb Hi. Unfortunately, you cannot use 1031 funds to build on the property you already own. 1031 Exchanges require you to acquire new investment property. Not improving current investment property. Building an ADU on your existing property doesn't involve acquiring new real estate, it's an improvement to your current holding.
I'm planning on building a rental property on a lot that I purchased already. Can I do a 1031 on a rental that I own to build another rental on the lot I own?
Hi Roy. Thank you for your question. Generally, a 1031 Exchange on a property you already own cannot be done. However, there is a way through a Leasehold Improvement Exchange.
At least six months prior to starting the exchange, the land owned by the Exchanger is conveyed to a related party. The related party leases the land to the EAT for a period greater than 30 years and 180 days. The improvements are constructed by the EAT with funds provided from the sale of the relinquished or old property. Towards the end of the 180 calendar days the EAT’s interest in the ground lease and improvements are assigned to the Exchanger as the replacement property, completing the exchange requirements.
The lessor or related party charges a fair market rent for at least two years to the Exchanger and terminates the ground lease at the end of the second year, satisfying the related party rules of Code Section 1031(f).
A 30-year leasehold interest is recognized as real property.
@@US1031Exchange hello- I have a similar question. We currently have a home and would like to build an ADU above our garage. Can we apply 1031 exchange towards building an ADU? both properties are in California. Thank you for you knowledge
@@NA-vf3zb Hi. Unfortunately, you cannot use 1031 funds to build on the property you already own. 1031 Exchanges require you to acquire new investment property. Not improving current investment property. Building an ADU on your existing property doesn't involve acquiring new real estate, it's an improvement to your current holding.