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Video instructions and help with filling out and completing Where Form 4797 Exchanges

Instructions and Help about Where Form 4797 Exchanges

Welcome to 10:31 University I'm Paul Holloway today's topic is is it possible to do improvements on a replacement property that you have purchased so for example if you buy a property of lesser value than what you sold for can you use exchange dollars to improve that replacement property well it really depends but let's go over a couple situations where it does work and then where it may not work so what we're going to do is just assume that you sell a property for a million dollars that is the start of the 1031 exchange that is the relinquished property so those proceeds come to your qualified intermediary now you've identified a replacement property and let's assume that replacement property is valued at $600,000 so where it depends is if you actually take title to that replacement property at 600,000 that is your like-kind property you cannot use additional exchange dollars to improve a property that you already own but with a parking arrangement much like a reverse 1031 exchange if you have this replacement property part with the qualified intermediary and that intermediary holds it under a special-purpose LLC and they hold it as an eat which stands for an exchange accomodating titleholder you can actually within the allotted 180 day window you can actually work a draw request arrangement with your intermediary to have additional exchange dollars go towards capital improvements done to the property typically the improvements have to be real property improvements and they do have to be completed within 180 days they do have to actually be in service you can't just put materials in the garage and wait for the work to be done you have to actually have the work done within the 180 days to make it qualify so let's kind of move forward with this example so it's subtle difference being instead of you bind the replacement property at 600,000 again a crew or your qualified intermediary steps in forms a special-purpose LLC we step into your shoes and buy that property at 600,000 and then again we work with you and doing multiple draw requests until any and all of the work is completed with the goal to get up to that $1,000,000 threshold by day 180 of the exchange so assuming you do you are able to complete upwards of 400,000 of capital improvements to the property now the property is valued at the $1,000,000 threshold which matches what you sold for on the front end of your exchange so then you would have a fully deferred exchange the final step would be at this point where the improvements are complete and in service we the intermediary that are currently holding title to this property under that special-purpose LLC more times than not we can just simply assign a 100% membership interest in that LLC over to the tax payer in effect completing their exchange and they are buying the replacement property at the improved value instead of lesser than full price value so this is a real quick summary of how to do this type of exchange now there's obviously a certain costs that qualify under the improvement process other types of costs that do not without going into great detail on it today if you would like further details on what it cost typically are acceptable and which ones are not obviously run it by your CPA or tax attorney to make sure they're in agreement but you can also visit a crew at comm we have educational pieces there and or you could reach out to a crew it by email and we'll be glad to send you a piece on the topic as well so this has been Paul Holloway with 1031 university and a crew if you like this piece feel free to visit our youtube site feel free to actually join the site and subscribe to it and we look forward to helping you with further pieces in the future thank you.

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