Exchange Strategy

Dallas Improvement Exchange and Build-to-Suit

When investors want to customize a replacement property rather than accept it as-is, an improvement exchange, sometimes called a construction or build-to-suit exchange, allows exchange funds to be used for construction and improvements, provided the improved value is placed in service before the exchange deadline closes. This structure relies on an exchange accommodation titleholder to hold title to the replacement property while improvements are completed, since an investor generally cannot construct improvements on property they already own and have that construction value count toward the exchange, because only property that is not yet owned by the taxpayer can be acquired as part of a like kind exchange. Everything built or installed on the property must be substantially complete and placed in service by the earlier of the one hundred eighty day deadline or the investor's tax filing deadline, and the deferral itself follows the same core rule as any Section 1031 exchange, gain is deferred, not eliminated, when exchange value is fully reinvested. Texas has no state income tax, so there is no separate state construction deadline, but the federal placed-in-service requirement is absolute and does not extend for weather delays, permitting backlogs, or a subcontractor who falls behind schedule during a busy Dallas, TX building season. We coordinate design, permitting, and draw schedules so improvement value is fully recognized inside the exchange period rather than left stranded because construction ran past the deadline, which would leave that unfinished portion of value outside the exchange and potentially taxable. General contractor selection deserves early attention on improvement exchanges, since availability constraints across North Texas can push a start date later than an investor expects, and a contractor unfamiliar with the documentation requirements of an EAT-held property can slow draw approvals unnecessarily. Permitting timelines vary meaningfully across Dallas, Plano, and surrounding suburban jurisdictions, and confirming a realistic permitting path before committing to an improvement exchange structure prevents a scenario where entitlement delays consume most of the available construction window. Budget variance tracking, contingency management, and lien oversight all matter more in an improvement exchange than in a typical construction project, because draw requests and lien releases need to be documented in a way that satisfies both the lender and the qualified intermediary or EAT overseeing the transaction. Boot exposure in an improvement exchange context most commonly arises when construction is not completed on time, since any improvement value not placed in service by the deadline generally does not count toward the exchange and the shortfall can be treated as taxable. Given the complexity involved, improvement exchanges generally require more specialized qualified intermediary and legal support than a standard forward exchange, and investors in Dallas, TX considering this structure should engage that support well before a purchase contract or construction contract is signed.