In a Leasehold Exchange (also known as a Construction Leasehold Exchange), the exchange proceeds from the relinquished property sale are used to construct improvements on property owned by the taxpayer or a party related to the taxpayer in the exchange. Via the use of a ground lease (at fair market value rent), the improvements are held by the EAT until either the improvements have been completed or the 180- day exchange deadline occurs. On or before the 180th day, the improvements and the ground lease are transferred to the taxpayer as the replacement property, in completion of the exchange. (NOTE: the ground lease must remain in place at fair market value rent until two years or longer after the exchange ends in order for the IRS to respect the leasehold arrangement.) These transactions may also be structured as Reverse Construction Exchanges. QI fees associated with both of these exchanges are higher due to the transactional complexity.
Strategic 1031 Exchange Advisors, LLC, a Georgia limited liability company, is a qualified intermediary for 1031 exchanges only. It is not an accounting firm, law firm or registered investment professional and therefore is not qualified to give accounting, tax, legal or investment advice, and, further, cannot act in an agency capacity on behalf of its clients. This website is for informational purposes only and does not and is not intended to constitute accounting, tax, legal or investment advice. We advise you to consult with your accountant, attorney and investment professional on all matters related to your exchange.