1031 Reverse Improvement Exchange- can it be done?

[Kelsey T.]

My husband and I are looking to sell a property, and invest the proceeds into the renovation of a property we already own. Can you do both a reverse and an improvement exchange combo? We purchased the initial property for $225k and can sell for $450k. The property we would like to improve is a very run down little house, fixed up would be worth about $2M.  We are in the process of getting the permits lined up and everything in order, so the 180 day time frame would be doable. I would like to know:

1) Is this even possible?

2) How much would it cost? 

3) To make this even more complicated, could we use the proceeds to improve two different properties? Both would have a higher value than the sold property. 

Thanks in advance for any help with this!

[Dave Foster]

@Kelsey T. You can't exchange into improvements on property you already own.  It's very confusing and counter intuitive.  But a reverse exchange is not where you buy your property first.  The 1031 requirements are always that you must relinquish title to the property you sell before you take title to a property you purchase.  A reverse exchange doesn't change that.  In a reverse your QI for the 1031 takes title to the new property and holds it until your old property sells.  The improvements in an improvement exchange happen while the QI holds title.  So you don't own your new property but you are in control of your new property.

The fact that you are financing the new property with the seller isn't going to help because you have taken title to the new property.