Improvement Exchanges
Sometimes an Exchangor will want to make improvements to a Replacement Property using tax-deferred funds. IRS regulations require that such improvements must be made before the Exchangor takes title. The solution is to have an EAT acquire the property, make the improvements, then transfer the property to the Exchangor to complete the reverse exchange.
Caution must be taken if the Exchangor tries to make improvements to land the Exchangor already owns. Rev. Proc. 2004-51 limits the application of Rev. Proc. 2000-37 in these situations. Rev. Proc. 2000-37 does not apply to Replacement Property held in a QEAA if the property is owned by the Exchangor within the 180-day period ending on the date of transfer of title to the property to an EAT.
