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Previously, I discussed section 1031(f) of the Internal Revenue Code, the Related Party Rules, introduced by Congress in 1989 to prevent taxpayers from manipulating the 1031 exchange rules to achieve a favorable outcome by entering into an exchange with a party related to them.
1031(f), added “special rules for exchanges between related persons” and essentially provided that such related party exchanges would not be allowed when, ”before the date 2 years after the date of the last transfer which was part of such exchange—
(i) the related person disposes of such property, or
(ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer”
We looked at the abuse that gave rise to the Related Party Rules and at which relationships are considered related parties. This week, we’ll examine common misconceptions of and exceptions to the Related Party Rules.
Common Misconceptions
I can get around the Related Party rules using a Qualified Intermediary.
Transacting an exchange through a Qualified Intermediary (QI) who is not a party related to the taxpayer does not “cleanse” the transaction when the seller is a related party. If the QI acquires the property from a party related to the taxpayer, the abuse is present, just as it would be if the taxpayer traded directly with the related party.  The catch-all provisions of §1031(f)(4) make clear that “This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection.”  Simply acquiring the related party’s property through the unrelated QI does not change the outcome. The IRS position on this scenario was the subject of PLR 201220012 which pertained to a taxpayer’s disposal of replacement property within the two year period.  The ruling concluded since the related party did an exchange from that property into another, there was no cashing out and therefore no tax abuse.
Finally, a seldom-used exception to the requirement of both parties retaining the property for two years or more occurs in the event of the death of the taxpayer or the related person.  Such an event will allow for the exchanged property being sold within the two year period while maintaining the original deferral.  Taxpayers will do just about anything to avoid paying tax, but this is clearly not a strategy that anyone will want to employ.
Summary
The exceptions to the prohibitions of the Related Party Rules have in common the notion that the involvement of the related party is attributable to reasons other than allowing the taxpayer to cash out while selling a low basis property to a third party. Learn more about 1031 Related Party Rules in my original post, 1031 Tax Deferred Exchanges Between Related Parties.
 
Updated 7/20/2022.

Simultaneous Exchange
Many people are surprised to learn that Section 1031 first made its way into the tax code in 1921. This was based on a belief by Congress that when someone swaps property with someone else and takes no cash out of the deal, there is no basis for assessing a tax. So, if a farmer traded some farmland with another for equal value, at the end of the day, each ended up with essentially what he had before.  This was considered a continuity of investment. It wasn’t relevant what each paid originally for his property (the property basis). Since the properties were not usually of equal value, some cash was usually necessary to equalize values. Then, as well as now, the receipt of the cash was not the receipt of “like-kind property” and therefore subject to tax. These exchanges took place directly between two persons, and the property exchanges were simultaneous.
Three-Party Exchanges
Over time, the two-party direct exchange became expanded a bit in order to provide greater opportunity to complete an exchange. In the example above, imagine how infrequent it would be for the two parties to find one another and have the properties and values work out. However, by adding a third party, the opportunity to complete a 1031 exchange became much more viable. Essentially, the taxpayer would find a willing buyer, and rather than receiving property of the buyer’s in trade, the taxpayer found desirable property from a third-party seller. So if the taxpayer arranged to sell the relinquished property to the buyer for $100, the buyer would be directed instead to pay the $100 to acquire the other property from the seller and, in turn, to transfer the seller’s property to the taxpayer to complete the transaction. The taxpayer would have concluded an exchange, the buyer simply bought taxpayer’s property, and the seller simply sold his property and cashed out.
Delayed or Deferred Exchange
Simultaneous exchanges continued along until the late 1970s. At that time, a particular taxpayer’s advisors took another look at Section 1031 and concluded that the language did not explicitly require an exchange to be simultaneous in order to be valid. In one case, a three-party exchange was structured providing that the buyer would be obligated to acquire properties selected by the taxpayer during a five-year period to equalize the value of the property sold to the buyer up front. To the extent that properties were not chosen over that time frame to meet the necessary value, the buyer would pay the difference to the taxpayer at the end of the five-year period, and the taxpayer would pay tax on the receipt of that money. So an exchange structured like this involved a “delay” between the exchange events.  It could also be said that the time for the taxpayer to receive the replacement property was “deferred” from the time of sale of the relinquished property, hence the term tax deferred exchange or 1031 tax deferred exchange. However, since the purpose of completing a 1031 exchange is to “defer” taxes, the reference to a deferred exchange can confuse the two different intentions regarding the use of the term “deferred.”
The Starker Exchange/Starker Trust
After an extensive legal battle between the taxpayer alluded to above and the IRS regarding the validity of a delayed time period (five years) to effectuate an exchange, the taxpayer prevailed in Federal District tax court. The taxpayer’s name was T.J. Starker. The decision in the case opened a huge window of opportunity for taxpayers to conclude exchanges on a delayed basis, but it opened up a myriad of accounting issues too. There were also practical issues like how to ensure that the buyer would, in fact, be ready, willing and able to buy the selected replacement property several years after receiving the relinquished property.
In response to the Starker case decision, Congress, as part of the Tax Reform Act of 1984, decided to tighten up the exchange period dramatically. So, a 45-day period to formally identify a potential replacement property and 180-day period to acquire it became an amendment to Section 1031. So, although Congress agreed that an exchange does not necessarily need to take place on a simultaneous basis, it did place restraints on the open-ended nature of the Starker decision. 
Like any modern-day exchange, the taxpayer cannot receive or have any interest in the funds owed by the buyer for the purchase of taxpayer’s property; however, these funds are required to purchase the replacement property. In order to facilitate this, it was decided that any property would be put in trust for the benefit of the parties but out of the possession of either party. The trust would provide that the buyer’s funds would be used to purchase the replacement property and anything left over after 180 days would be paid directly to the seller/taxpayer (and tax would be paid on any such portion). What better idea than to call this a Starker Trust? Although the Starker Trust went away in 1991 as per the next section, to this day, many people still use the name of a “Starker exchange.”
Tax Deferred Exchange (1031 Tax Deferred Exchange)
The latter half of the 1980s witnessed a huge increase in Starker exchange activity. With the increase in activity more terms for a 1031 exchange were created which include tax deferred exchange, 1031 tax deferred exchange, and deferred 1031 exchange. However, other than Section 1031, IRS rulings and some legal decisions, there was a scant authority on how to properly do an exchange. In 1991, the Treasury Department issued a comprehensive set of regulations on the subject that still govern exchange procedures today.  Although these regulations still approved the use of a trust, in most cases its not necessary. Perhaps the most significant aspect of the new regulations was the suggested use of an intermediary in order to fall into the safe harbor of these regulations. Use of the intermediary obviated the involvement of the buyer in the taxpayer’s exchange. The intermediary effectively took the place of the buyer in this regard. Essentially, the taxpayer would sell the relinquished property to the Intermediary who would cause the property to be transferred to the buyer. Later, the intermediary would acquire the replacement property on behalf of the taxpayer and cause it to be transferred to her. Although legal title could be transferred directly and did not need to pass through the intermediary, through the use of these provisions, for tax purposes the taxpayer was deemed to have concluded an exchange with the intermediary. 
Under regulations, certain persons or entities, such as agents and employees of the taxpayer, were disqualified from acting as the intermediary.  Anyone who was not disqualified was considered “qualified” and the present day exchange requires the use of a qualified Intermediary or “QI.”  A secondary function allowed for the proceeds from the sale of the relinquished property to be held by the intermediary on behalf of the taxpayer to remove the buyer from any participation in the taxpayer’s exchange while also ensuring the taxpayer not be considered to have any dominion or control of those funds. Although the use of a trust was still approved by the regulations, in most situations the QI holding the funds replaced the need for the trust.
Other common, yet misspoken terms for 1031 exchanges 
Some other common, yet incorrect terms that 1031 exchanges are often called include: 

Like Exchange, a misinterpretation of Like-Kind Exchange
10-31 Exchanges, an incorrect alteration to a 1031 Exchange namesake to the IRC Section 1031 
Tax Deffered Exchange, a very common misspelling of “deferred” 

Reverse Exchange
In 1990, when the exchange regulations were under consideration by the IRS during a year-long comment period, many people asked the IRS to include rules for when a taxpayer needed to acquire, or face losing, a replacement property prior to the sale of the relinquished property. In other words, when the sequence of closings was “reverse” from normal. Although the 1991 regulations did not provide guidance on the subject, the IRS indicated that it would consider providing such rules in the future.  In 2001, such rules were issued. Those regulations suggested several different ways for a taxpayer to effectively preserve the ability to acquire the target replacement property prior to the sale of the relinquished property. These techniques continue to be very popular to this day by way of a Reverse Exchange or Parking Exchange. 
Build-to-Suit/Improvement Exchanges
Similar to the need for guidance regarding reverse exchanges, many taxpayers needed a way to utilize exchange funds to cover new construction (build-to-suit) or fix up (improvement) the replacement property. The inherent problem is that once a taxpayer takes ownership of the property, improvements to the property consist of payments to contractors for service and payment for material. Exchanges need to be “like-kind, ” i.e., real estate for real estate, not real estate for labor and materials. The 2001 regulations addressed this problem and provided that the taxpayer can retain the services of an Exchange Accommodation Titleholder (EAT) to take title to the property and cause the necessary construction/improvements be done to it.  In a build-to-suit or improvement exchange, the EAT transfers the real estate to the taxpayer and the improved value, based upon the construction or improvements, is considered the receipt of the like-kind real estate. When improving the property in this manner, it does not matter if the EAT acquires the property and starts the work before the relinquished property is sold or after it is sold. 
Reverse Build-to-Suit/Improvement Exchanges
If the construction or improvement process is begun prior to the sale, the same rules apply as above. However, the transaction is known as a reverse build-to-suit or improvement exchange. Whether a direct or reverse process is used, the maximum time the EAT can hold and improve the property is 180 days.
 
Updated 6.24.2022.

Simultaneous Exchange
Many people are surprised to learn that Section 1031 first made its way into the tax code in 1921. This was based on a belief by Congress that when someone swaps property with someone else and takes no cash out of the deal, there is no basis for assessing a tax. So, if a farmer traded some farmland with another for equal value, at the end of the day, each ended up with essentially what he had before.  This was considered a continuity of investment. It wasn’t relevant what each paid originally for his property (the property basis). Since the properties were not usually of equal value, some cash was usually necessary to equalize values. Then, as well as now, the receipt of the cash was not the receipt of “like-kind property” and therefore subject to tax. These exchanges took place directly between two persons, and the property exchanges were simultaneous.
Three-Party Exchanges
Over time, the two-party direct exchange became expanded a bit in order to provide greater opportunity to complete an exchange. In the example above, imagine how infrequent it would be for the two parties to find one another and have the properties and values work out. However, by adding a third party, the opportunity to complete a 1031 exchange became much more viable. Essentially, the taxpayer would find a willing buyer, and rather than receiving property of the buyer’s in trade, the taxpayer found desirable property from a third-party seller. So if the taxpayer arranged to sell the relinquished property to the buyer for $100, the buyer would be directed instead to pay the $100 to acquire the other property from the seller and, in turn, to transfer the seller’s property to the taxpayer to complete the transaction. The taxpayer would have concluded an exchange, the buyer simply bought taxpayer’s property, and the seller simply sold his property and cashed out.
Delayed or Deferred Exchange
Simultaneous exchanges continued along until the late 1970s. At that time, a particular taxpayer’s advisors took another look at Section 1031 and concluded that the language did not explicitly require an exchange to be simultaneous in order to be valid. In one case, a three-party exchange was structured providing that the buyer would be obligated to acquire properties selected by the taxpayer during a five-year period to equalize the value of the property sold to the buyer up front. To the extent that properties were not chosen over that time frame to meet the necessary value, the buyer would pay the difference to the taxpayer at the end of the five-year period, and the taxpayer would pay tax on the receipt of that money. So an exchange structured like this involved a “delay” between the exchange events.  It could also be said that the time for the taxpayer to receive the replacement property was “deferred” from the time of sale of the relinquished property, hence the term tax deferred exchange or 1031 tax deferred exchange. However, since the purpose of completing a 1031 exchange is to “defer” taxes, the reference to a deferred exchange can confuse the two different intentions regarding the use of the term “deferred.”
The Starker Exchange/Starker Trust
After an extensive legal battle between the taxpayer alluded to above and the IRS regarding the validity of a delayed time period (five years) to effectuate an exchange, the taxpayer prevailed in Federal District tax court. The taxpayer’s name was T.J. Starker. The decision in the case opened a huge window of opportunity for taxpayers to conclude exchanges on a delayed basis, but it opened up a myriad of accounting issues too. There were also practical issues like how to ensure that the buyer would, in fact, be ready, willing and able to buy the selected replacement property several years after receiving the relinquished property.
In response to the Starker case decision, Congress, as part of the Tax Reform Act of 1984, decided to tighten up the exchange period dramatically. So, a 45-day period to formally identify a potential replacement property and 180-day period to acquire it became an amendment to Section 1031. So, although Congress agreed that an exchange does not necessarily need to take place on a simultaneous basis, it did place restraints on the open-ended nature of the Starker decision. 
Like any modern-day exchange, the taxpayer cannot receive or have any interest in the funds owed by the buyer for the purchase of taxpayer’s property; however, these funds are required to purchase the replacement property. In order to facilitate this, it was decided that any property would be put in trust for the benefit of the parties but out of the possession of either party. The trust would provide that the buyer’s funds would be used to purchase the replacement property and anything left over after 180 days would be paid directly to the seller/taxpayer (and tax would be paid on any such portion). What better idea than to call this a Starker Trust? Although the Starker Trust went away in 1991 as per the next section, to this day, many people still use the name of a “Starker exchange.”
Tax Deferred Exchange (1031 Tax Deferred Exchange)
The latter half of the 1980s witnessed a huge increase in Starker exchange activity. With the increase in activity more terms for a 1031 exchange were created which include tax deferred exchange, 1031 tax deferred exchange, and deferred 1031 exchange. However, other than Section 1031, IRS rulings and some legal decisions, there was a scant authority on how to properly do an exchange. In 1991, the Treasury Department issued a comprehensive set of regulations on the subject that still govern exchange procedures today.  Although these regulations still approved the use of a trust, in most cases its not necessary. Perhaps the most significant aspect of the new regulations was the suggested use of an intermediary in order to fall into the safe harbor of these regulations. Use of the intermediary obviated the involvement of the buyer in the taxpayer’s exchange. The intermediary effectively took the place of the buyer in this regard. Essentially, the taxpayer would sell the relinquished property to the Intermediary who would cause the property to be transferred to the buyer. Later, the intermediary would acquire the replacement property on behalf of the taxpayer and cause it to be transferred to her. Although legal title could be transferred directly and did not need to pass through the intermediary, through the use of these provisions, for tax purposes the taxpayer was deemed to have concluded an exchange with the intermediary. 
Under regulations, certain persons or entities, such as agents and employees of the taxpayer, were disqualified from acting as the intermediary.  Anyone who was not disqualified was considered “qualified” and the present day exchange requires the use of a qualified Intermediary or “QI.”  A secondary function allowed for the proceeds from the sale of the relinquished property to be held by the intermediary on behalf of the taxpayer to remove the buyer from any participation in the taxpayer’s exchange while also ensuring the taxpayer not be considered to have any dominion or control of those funds. Although the use of a trust was still approved by the regulations, in most situations the QI holding the funds replaced the need for the trust.
Other common, yet misspoken terms for 1031 exchanges 
Some other common, yet incorrect terms that 1031 exchanges are often called include: 

Like Exchange, a misinterpretation of Like-Kind Exchange
10-31 Exchanges, an incorrect alteration to a 1031 Exchange namesake to the IRC Section 1031 
Tax Deffered Exchange, a very common misspelling of “deferred” 

Reverse Exchange
In 1990, when the exchange regulations were under consideration by the IRS during a year-long comment period, many people asked the IRS to include rules for when a taxpayer needed to acquire, or face losing, a replacement property prior to the sale of the relinquished property. In other words, when the sequence of closings was “reverse” from normal. Although the 1991 regulations did not provide guidance on the subject, the IRS indicated that it would consider providing such rules in the future.  In 2001, such rules were issued. Those regulations suggested several different ways for a taxpayer to effectively preserve the ability to acquire the target replacement property prior to the sale of the relinquished property. These techniques continue to be very popular to this day by way of a Reverse Exchange or Parking Exchange. 
Build-to-Suit/Improvement Exchanges
Similar to the need for guidance regarding reverse exchanges, many taxpayers needed a way to utilize exchange funds to cover new construction (build-to-suit) or fix up (improvement) the replacement property. The inherent problem is that once a taxpayer takes ownership of the property, improvements to the property consist of payments to contractors for service and payment for material. Exchanges need to be “like-kind, ” i.e., real estate for real estate, not real estate for labor and materials. The 2001 regulations addressed this problem and provided that the taxpayer can retain the services of an Exchange Accommodation Titleholder (EAT) to take title to the property and cause the necessary construction/improvements be done to it.  In a build-to-suit or improvement exchange, the EAT transfers the real estate to the taxpayer and the improved value, based upon the construction or improvements, is considered the receipt of the like-kind real estate. When improving the property in this manner, it does not matter if the EAT acquires the property and starts the work before the relinquished property is sold or after it is sold. 
Reverse Build-to-Suit/Improvement Exchanges
If the construction or improvement process is begun prior to the sale, the same rules apply as above. However, the transaction is known as a reverse build-to-suit or improvement exchange. Whether a direct or reverse process is used, the maximum time the EAT can hold and improve the property is 180 days.
 
Updated 6.24.2022.

Simultaneous Exchange
Many people are surprised to learn that Section 1031 first made its way into the tax code in 1921. This was based on a belief by Congress that when someone swaps property with someone else and takes no cash out of the deal, there is no basis for assessing a tax. So, if a farmer traded some farmland with another for equal value, at the end of the day, each ended up with essentially what he had before.  This was considered a continuity of investment. It wasn’t relevant what each paid originally for his property (the property basis). Since the properties were not usually of equal value, some cash was usually necessary to equalize values. Then, as well as now, the receipt of the cash was not the receipt of “like-kind property” and therefore subject to tax. These exchanges took place directly between two persons, and the property exchanges were simultaneous.
Three-Party Exchanges
Over time, the two-party direct exchange became expanded a bit in order to provide greater opportunity to complete an exchange. In the example above, imagine how infrequent it would be for the two parties to find one another and have the properties and values work out. However, by adding a third party, the opportunity to complete a 1031 exchange became much more viable. Essentially, the taxpayer would find a willing buyer, and rather than receiving property of the buyer’s in trade, the taxpayer found desirable property from a third-party seller. So if the taxpayer arranged to sell the relinquished property to the buyer for $100, the buyer would be directed instead to pay the $100 to acquire the other property from the seller and, in turn, to transfer the seller’s property to the taxpayer to complete the transaction. The taxpayer would have concluded an exchange, the buyer simply bought taxpayer’s property, and the seller simply sold his property and cashed out.
Delayed or Deferred Exchange
Simultaneous exchanges continued along until the late 1970s. At that time, a particular taxpayer’s advisors took another look at Section 1031 and concluded that the language did not explicitly require an exchange to be simultaneous in order to be valid. In one case, a three-party exchange was structured providing that the buyer would be obligated to acquire properties selected by the taxpayer during a five-year period to equalize the value of the property sold to the buyer up front. To the extent that properties were not chosen over that time frame to meet the necessary value, the buyer would pay the difference to the taxpayer at the end of the five-year period, and the taxpayer would pay tax on the receipt of that money. So an exchange structured like this involved a “delay” between the exchange events.  It could also be said that the time for the taxpayer to receive the replacement property was “deferred” from the time of sale of the relinquished property, hence the term tax deferred exchange or 1031 tax deferred exchange. However, since the purpose of completing a 1031 exchange is to “defer” taxes, the reference to a deferred exchange can confuse the two different intentions regarding the use of the term “deferred.”
The Starker Exchange/Starker Trust
After an extensive legal battle between the taxpayer alluded to above and the IRS regarding the validity of a delayed time period (five years) to effectuate an exchange, the taxpayer prevailed in Federal District tax court. The taxpayer’s name was T.J. Starker. The decision in the case opened a huge window of opportunity for taxpayers to conclude exchanges on a delayed basis, but it opened up a myriad of accounting issues too. There were also practical issues like how to ensure that the buyer would, in fact, be ready, willing and able to buy the selected replacement property several years after receiving the relinquished property.
In response to the Starker case decision, Congress, as part of the Tax Reform Act of 1984, decided to tighten up the exchange period dramatically. So, a 45-day period to formally identify a potential replacement property and 180-day period to acquire it became an amendment to Section 1031. So, although Congress agreed that an exchange does not necessarily need to take place on a simultaneous basis, it did place restraints on the open-ended nature of the Starker decision. 
Like any modern-day exchange, the taxpayer cannot receive or have any interest in the funds owed by the buyer for the purchase of taxpayer’s property; however, these funds are required to purchase the replacement property. In order to facilitate this, it was decided that any property would be put in trust for the benefit of the parties but out of the possession of either party. The trust would provide that the buyer’s funds would be used to purchase the replacement property and anything left over after 180 days would be paid directly to the seller/taxpayer (and tax would be paid on any such portion). What better idea than to call this a Starker Trust? Although the Starker Trust went away in 1991 as per the next section, to this day, many people still use the name of a “Starker exchange.”
Tax Deferred Exchange (1031 Tax Deferred Exchange)
The latter half of the 1980s witnessed a huge increase in Starker exchange activity. With the increase in activity more terms for a 1031 exchange were created which include tax deferred exchange, 1031 tax deferred exchange, and deferred 1031 exchange. However, other than Section 1031, IRS rulings and some legal decisions, there was a scant authority on how to properly do an exchange. In 1991, the Treasury Department issued a comprehensive set of regulations on the subject that still govern exchange procedures today.  Although these regulations still approved the use of a trust, in most cases its not necessary. Perhaps the most significant aspect of the new regulations was the suggested use of an intermediary in order to fall into the safe harbor of these regulations. Use of the intermediary obviated the involvement of the buyer in the taxpayer’s exchange. The intermediary effectively took the place of the buyer in this regard. Essentially, the taxpayer would sell the relinquished property to the Intermediary who would cause the property to be transferred to the buyer. Later, the intermediary would acquire the replacement property on behalf of the taxpayer and cause it to be transferred to her. Although legal title could be transferred directly and did not need to pass through the intermediary, through the use of these provisions, for tax purposes the taxpayer was deemed to have concluded an exchange with the intermediary. 
Under regulations, certain persons or entities, such as agents and employees of the taxpayer, were disqualified from acting as the intermediary.  Anyone who was not disqualified was considered “qualified” and the present day exchange requires the use of a qualified Intermediary or “QI.”  A secondary function allowed for the proceeds from the sale of the relinquished property to be held by the intermediary on behalf of the taxpayer to remove the buyer from any participation in the taxpayer’s exchange while also ensuring the taxpayer not be considered to have any dominion or control of those funds. Although the use of a trust was still approved by the regulations, in most situations the QI holding the funds replaced the need for the trust.
Other common, yet misspoken terms for 1031 exchanges 
Some other common, yet incorrect terms that 1031 exchanges are often called include: 

Like Exchange, a misinterpretation of Like-Kind Exchange
10-31 Exchanges, an incorrect alteration to a 1031 Exchange namesake to the IRC Section 1031 
Tax Deffered Exchange, a very common misspelling of “deferred” 

Reverse Exchange
In 1990, when the exchange regulations were under consideration by the IRS during a year-long comment period, many people asked the IRS to include rules for when a taxpayer needed to acquire, or face losing, a replacement property prior to the sale of the relinquished property. In other words, when the sequence of closings was “reverse” from normal. Although the 1991 regulations did not provide guidance on the subject, the IRS indicated that it would consider providing such rules in the future.  In 2001, such rules were issued. Those regulations suggested several different ways for a taxpayer to effectively preserve the ability to acquire the target replacement property prior to the sale of the relinquished property. These techniques continue to be very popular to this day by way of a Reverse Exchange or Parking Exchange. 
Build-to-Suit/Improvement Exchanges
Similar to the need for guidance regarding reverse exchanges, many taxpayers needed a way to utilize exchange funds to cover new construction (build-to-suit) or fix up (improvement) the replacement property. The inherent problem is that once a taxpayer takes ownership of the property, improvements to the property consist of payments to contractors for service and payment for material. Exchanges need to be “like-kind, ” i.e., real estate for real estate, not real estate for labor and materials. The 2001 regulations addressed this problem and provided that the taxpayer can retain the services of an Exchange Accommodation Titleholder (EAT) to take title to the property and cause the necessary construction/improvements be done to it.  In a build-to-suit or improvement exchange, the EAT transfers the real estate to the taxpayer and the improved value, based upon the construction or improvements, is considered the receipt of the like-kind real estate. When improving the property in this manner, it does not matter if the EAT acquires the property and starts the work before the relinquished property is sold or after it is sold. 
Reverse Build-to-Suit/Improvement Exchanges
If the construction or improvement process is begun prior to the sale, the same rules apply as above. However, the transaction is known as a reverse build-to-suit or improvement exchange. Whether a direct or reverse process is used, the maximum time the EAT can hold and improve the property is 180 days.
 
Updated 6.24.2022.