Keep More of What You’ve Earned—And Create the Property You Really Want

You worked hard to build equity in your investment property—so why should a big chunk of it disappear to taxes the moment you sell?

With a 1031 Exchange, you have the power to defer capital gains taxes and reinvest every available dollar into your next opportunity. But what if your ideal replacement property doesn’t exist yet—or needs significant work before it’s ready for tenants, resale, or your portfolio?

That’s where the Build-to-Suit (or Improvement) Strategy comes in. It allows you to use your exchange funds not just to purchase a property, but to build or renovate it—turning a raw space, outdated structure, or unfinished project into a purpose-built asset that works for your vision.

By partnering with a Qualified Intermediary (QI) and a special-purpose Exchange Accommodation Titleholder (EAT), you can direct your exchange proceeds toward qualified improvements—so long as they’re completed and the property is acquired within 180 days of selling your relinquished asset.

This strategy is tailor-made for investors who:

• Want to maximize tax savings while customizing a property to meet their goals

• Are willing to plan ahead and coordinate construction as part of their exchange

• See opportunity where others only see work

You already did the hard part: building wealth. The Build-to-Suit strategy helps you protect that progress—and take it even further.

Explore the timeline and checklist below to see how this powerful strategy works.

1031 Exchange: Build-to-Suit (Construction) Strategy

The Build-to-Suit or Improvement Exchange is a powerful 1031 strategy designed for investors who want to reinvest their sale proceeds into a property that requires construction or renovation to meet their needs. This strategy allows you to use 1031 exchange funds not just to buy a replacement property—but to build, remodel, or improve it—provided that construction is completed within the IRS's strict 180-day deadline.

Unlike a traditional exchange, a Build-to-Suit strategy involves more moving parts and requires additional entities to comply with IRS rules. Specifically, you’ll work with both a Qualified Intermediary (QI) and an Exchange Accommodation Titleholder (EAT). The EAT takes title to the replacement property during construction, holding it on your behalf until the improvements are complete and the exchange can be finalized.

This approach is especially helpful if:

• You can't find a replacement property that meets your needs as-is

• You want to add value through new construction or significant rehab

• You’re willing to plan ahead and coordinate with contractors, lenders, and title companies before selling your relinquished property

🧱 Example: Build-to-Suit Exchange (Construction / Improvement Exchange)

✅ Situation

You sell an investment property for $1,000,000, but you’ve found a replacement property worth only $700,000. You want to use the remaining $300,000 to make improvements — but under a regular 1031 Exchange, unspent funds are taxable.

To defer all capital gains taxes, you need to spend the entire $1M, including the improvement costs — and that’s where this strategy comes in.

🔧 Legal & Financial Structure

Because you can’t improve a property you already own in a 1031 Exchange, the IRS requires a workaround:

🔁 You Use a Qualified Intermediary (QI) and an Exchange Accommodation Titleholder (EAT)

1. The EAT (a special LLC created by the QI) temporarily holds title to the replacement property during construction.

2. You direct the QI to fund property purchase and improvements — all within the 180-day exchange window.

3. After improvements are complete (or time is up), the EAT transfers title to you.

📆 Step-by-Step Timeline

✅ Step 1: Prep Before Closing

• Engage a Qualified Intermediary (QI) who can perform a build-to-suit exchange (not all QIs do this).

• Line up an Exchange Accommodation Titleholder (EAT) (usually part of or affiliated with your QI).

• Select and secure your replacement property.

• Get detailed construction bids and scope of work.

• Ensure contractors can begin work quickly after closing.

🗓️ Step 2: Sell the Relinquished Property

• Proceeds from the sale go to the QI — you never touch the funds.

• The 180-day clock starts the day after closing.

🛠️ Step 3: Acquire Replacement Property in EAT’s Name

• The EAT purchases the replacement property using exchange funds.

• Title is held in the name of the EAT during the construction period.

🧱 Step 4: Construct Improvements

• The QI pays contractors directly from the exchange funds.

• All improvements must be made within 180 days of the original sale.

• Only the value in place and completed by Day 180 counts toward your exchange.

🏁 Step 5: Transfer Title to You

• Once all improvements are done (or 180 days are up), the EAT transfers title to you.

• The total value (property + improvements) must equal or exceed the sale price of the relinquished property to defer all capital gains taxes.

📌 Key Rules to Keep in Mind

🧑‍💼 Who This Strategy Is For

• Investors upgrading properties using sale proceeds.

• Developers building ADUs, garages, multifamily conversions, or commercial renovations.

• Anyone wanting to maximize tax deferral while improving a lower-cost asset.

🚀 Thinking of selling an investment property?
Let’s map out your 1031 Exchange game plan before your next sale. My team and I will connect you with vetted QIs, trusted lenders, and help you position your next move for success.

Contact us to get started we’ll walk you through your next best step.