Found the right building before you sold?
A normal 1031 assumes you sell first and buy second. Real markets don’t cooperate. When the replacement property appears before your sale closes — or when the building you want needs work before it’s worth owning — there are two structures that still preserve the deferral. Both are legitimate, both sit inside an IRS safe harbor, and both are more demanding than a standard exchange.
The rule that forces the whole structure.
A 1031 exchange requires that you not have owned both properties simultaneously. If you buy the replacement outright while still holding the property you intend to sell, you haven’t exchanged anything — you’ve simply made a purchase, and the later sale is a taxable sale.
The solution the IRS blessed in Revenue Procedure 2000-37 is parking. A separate entity, called an Exchange Accommodation Titleholder, takes and holds title to one of the properties on your behalf while the other side of the transaction completes. You never hold both. When the sale closes, the parked property is transferred to you and the exchange is finished.
It works. It is also more moving parts, more cost, and a shorter effective runway than most people expect — which is why it should be a decision made deliberately, not a rescue attempted in week six.
Which structure, and when.
They solve different problems and carry different risks. Picking the wrong one, or discovering you needed one after the fact, is expensive.
You found it before you sold it
The replacement property is acquired and parked with the accommodation titleholder while your relinquished property goes to market. Right answer when the building you want will not wait for your sale — a competitive off-market deal, an expiring option, a seller who needs certainty.
The building isn’t worth owning yet
Exchange proceeds are used to improve the replacement property while it is still parked, so the improvements count toward the exchange value. Right answer when the replacement needs real work to justify the price, or when you need to spend up to fully absorb your proceeds and avoid boot.
You cannot improve what you already own
Exchange funds cannot be spent improving property you hold title to. The improvements have to happen during the parking period, before the property comes to you. Miss that sequence and the spend simply doesn’t count.
The parking period is finite
The safe harbor limits how long the accommodation titleholder can hold the property, and the identification and exchange deadlines still apply on their own track. A construction schedule that slips does not extend a tax deadline.
Financing. Most conventional lenders are uncomfortable lending to an accommodation titleholder they’ve never dealt with, on a structure they have to underwrite from scratch. Reverse exchanges frequently die not on the tax rules but on the loan — which is why the lender conversation has to happen before anyone signs anything, not after the property is parked.
An improvement exchange is a construction project wearing a tax deadline.
The standard version of this involves a QI, a lender, a contractor, and a CPA who have never worked together, coordinating a build against a fixed statutory clock. That is exactly the seam these deals fall through.
Priced by a licensed GC before you commit
What the improvements will actually cost and how long they will actually take, estimated by someone who builds — because the entire structure depends on that schedule holding.
Structured by the CPA who files it
Which spend counts toward exchange value, how the parking is documented, and how the whole thing lands on the return.
Held by an independent QI
Required by law and never us. The accommodation titleholder and intermediary roles stay with independent parties.
Managed from day one
A property you had to improve to justify buying is a property that needs running. That handoff is already arranged.
Before you consider one.
Is a reverse exchange more expensive? +
Can I get a normal mortgage on a parked property? +
What if my sale doesn’t close in time? +
Can I do the construction work myself to save money? +
Is this aggressive or audit-bait? +
Decide this deliberately.
If the replacement showed up before your sale, or the building needs work before it’s worth owning, bring us the situation. Twenty minutes and you’ll know whether a reverse or improvement structure is worth what it costs — including when the answer is no.