Exchanging vacant land for a home under construction

[Ryan Mordahl]

Hello BiggerPockets!

Here is general background to my question:

My company is building 5 new single-family homes in California with the intention to sell them. An owner of a large parcel of vacant land contacted me and said that we could exchange 1 of our houses for her vacant land and 100k. She said that the exchange would be considered 'like-kind' as long as we can do the trade before our home receives the certificate of occupancy from the city. After the exchange takes place, she wants to rent the new house out and we intend to take title to her land and build and sell 3 new sf homes on it. We are not generally concerned with capital gains taxes. To us, the deal yields a higher return as an exchange than it does if we were to buy her vacant land outright and then build 3 homes on it.

Here is my question:

Does this exchange sound possible in terms of the 1031 rules?

Are there normally additional closing costs involved with 1031s? If so,what is a ball-park assumption?

What major issues am I missing?

Any input is appreciated. Thanks to BiggerPockets!

-Ryan

[Bill Exeter]

It depends on which side of the fence you are one. It would not qualify from your perspective because your intent is to build and sell (not hold for investment). It may qualify from her perspective if she is disposing of land and acquiring a rental property that she intends to hold for rental.