IMPROVEMENT EXCHANGE QUESTIONS AND ANSWERS
What is an Improvement exchange?
Why would a person attempt this kind of exchange?
Is this form of exchange allowed by the regulations?
How is this form of exchange accomplished?
May this improvement be made on land already owned by the EXCHANGER? Property owned by the EXCHANGER may not be used. See the next question for options.
May the EXCHANGER transfer property owned by him to a general contractor, enter into a contract to build improvements on it and exchange it with the builder for other real property? This might be possible. There are some letter rulings from the IRS. There is no caselaw or regulation. This form of exchange is not practical without considerable advanced planning and advice of experienced counsel.
Why not have the replacement property transferred to EXCHANGER, and exchange account funds disbursed as needed to construct improvements (or even paid in advance)? The regulations specifically state that a contract to construct improvements is not “like kind” to the improvements which were exchanged for the contract.
If the general contractor wants a contract signed or requires an advance of funds to pay for the improvements, who signs and pays? The EXCHANGER cannot exercise control over the construction. If documents are to be signed, the accommodator signs. If disbursements are made, the accommodator makes them. The EXCHANGER approves contracts and disbursements “as to form”.
Who supervises the improvement as it is constructed?
What kinds of liability face the accommodator if it is in title to the property while improvements are being made? Work on the construction project subjects the owner of the property being improved to two forms of liability: construction lien liability for money owed laborers and materialmen and liability for workers compensation and other potential liability for injuries on the job site.
If I want to attempt an improvement exchange, what will it cost?