1031 exchange to fund down payment on development project

[Barry H.]

Would the capital gains from selling an investment property held in a particular LLC be eligible for a 1031 exchange fund if it is applied to a down payment on a commercial development owned by same LLC that broke ground within the time limits dictated by this IRS program

For instance, if an office building is sold for 2M resulting in a 750k capital gain, could that 750k be earmarked and applied to help finance a 5M new commercial mixed-use development that is in planning stages by same LLC and set to break ground within the coming years. Assumption is that the office building could be sold within any needed IRS time period as there are willing buyers for this fully leased complex.

Main question is whether or not developments are applicable or just existing properties in 1031 exchanges.

[Steven Hamilton II]

Originally posted by Barry H.:

Originally posted by Steve Babiak:

What happened to the other $1.25M? In order to defer the capital gains on the 750K, the entire proceeds have to be re-invested (including the "basis").

I would expect there would be an outstanding loan balance, depreciation, and other factors that would leave only the ~750k at the sale closing to bring into the other deal. Maybe I am not understanding such a proposed transaction well enough to answer your question. Thanks for the response.

@barry H,

It doesn't work that way. ALL of the proceeds must be reinvested. That would include getting a new loan. It can be worked out. If you did it correctly. You would have to follow this: http://www.exeter1031.com/article_build_to_suit_exchange.aspx

I'm sure @Bill Exeter can explain it further. Except you would either have to come up with the funds or find a lender willing to bridge the equity in the property for sale. This is doable if you have the drive to get it done.