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Improvement Exchange

The phrase Improvement Exchange refers to a variant of the 1031 exchange, where the replacement property is improved upon before it is officially received as the replacement property. This is sometimes called a “build-to-suit” or “construction” exchange. In this scenario, the investor uses the proceeds from the sold property not only to acquire the replacement property but also to make improvements on it before taking ownership, allowing the investor to effectively roll the value of the improvements into the 1031 exchange and thus defer taxes on that portion of the investment as well.