Say you had sold a property with no debt for $10M and wanted to exchange into an all cash upleg. Found a property for $9M requiring $1M in capex, or similarly a $9M hotel with a $1M PIP. Could you trade into the upleg and have no exposure to gains tax, or would the capex/PIP costs be treated as not part of the purchase?
I'd assume that they would need to be included somewhere on a closing statement for accounting purposes to show that the money was being applied to it Day 1?
To answer your question simply - yes... look into structures called "Improvement 1031 Exchange", I think theres a few other names for it as well...there are some stipulations to the capex though...I believe the funds used for the capex must be a balance from the prior asset. Most importantly the capex must be paid for and COMPLETED during the 180 day exchange period. This will shield you from any taxes. Also note the type of work that needs to be done, as it can't be basic R&M.
Thank you for the feedback. To your point, the work needs to be quantified AND completed during the 180 days.
In the case of a hotel purchase however, the PIP is generally multi-phased over time. So in that example, if the PIP money isn't spent prior to the 180 days, it cannot be included as part of the exchange amount, correct?
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