287. Exploring Advanced 1031 Exchanges and Partnership Divisions with Matt Rappaport, Esq., LL.M.
Tax Smart Real Estate Investors Podcast
Navigating Reverse 1031 Exchanges and Construction Challenges
To effectively conduct a reverse 1031 exchange involving construction, it is crucial to have available funds to facilitate the transaction, since proceeds from the relinquished property cannot be used directly. Timing is a significant challenge; the exchange and construction timeline must be coordinated to ensure adherence to regulations. In a safe harbor scenario, exchangers have a 180-day exchange period that starts with acquisition, which mitigates risks associated with potential delays. If construction is incomplete within the identified timeframe, only the portion of the construction that remains unfinished affects the exchange outcome, not the entire transaction. Developers benefit from having an in-house general contractor (GC) familiar with the complexities of reverse exchanges, enhancing the likelihood of successful execution. Planning is vital; issues like leftover cash from debt capital, incomplete identified construction, or mismanaged timelines can jeopardize the exchange. Engaging a GC who understands the nuances of these exchanges is imperative for navigating the challenges associated with the deadline management and ensuring compliance with regulations.
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