How does an improvement (build-to-suit) exchange work?

Question

Turnrow Capital · Accepted Answer

An improvement exchange lets you use exchange funds to buy land and build on it — irrigation, trellising, barns, even planting. An accommodation titleholder holds the property while improvements are constructed, and only work completed within the 180-day window counts toward your exchange value.

The standard exchange rule is that you get credit only for what exists at closing. The improvement structure bends that: the accommodation titleholder takes title, your exchange funds pay for construction, and at day 180 you receive the land plus whatever has actually been built. If you sold for $1M and the land costs $600,000, you need $400,000 of completed improvements inside the window to fully defer.

For agricultural property this is genuinely useful — raw land plus a new well, pivot, or trellis system can absorb far more exchange value than the dirt alone. But 180 days is brutally short for construction. Permits, contractors, and weather do not respect IRS deadlines, and unfinished work simply does not count. Plans, bids, and ideally permits should exist before your relinquished property closes.

These are the most complex and expensive exchanges to administer, with QI fees typically well above a standard exchange. They make sense when the improvement gap is large; for small gaps, accepting a little boot is often cheaper than the structure. Model it with your QI and CPA first.