Can a Newly Constructed NNN Property Be Eligible for a 1031 Exchange?
As an investor, you probably know about the 1031 exchange tax code. Simply put, it allows you to sell one property and buy another and defer the capital gains tax on the profit you make from the sale.
But have you heard of the benefits of buying a triple-net lease property currently under construction? Well, this idea may be even more attractive than you think. This investment may give you unique benefits if you use it, but how do you do it properly? And does a new construction NNN property qualify for a 1031 exchange?
Investing in a new construction triple-net property is your opportunity to benefit from a brand-new building with practically no maintenance required and not to engage in high risks. Besides that, such an investment gives you stability, both in income and the conditions, so it is worth your attention.
In this article, we’ll look at the options you can get by purchasing an NNN lease property under construction and how to do it wisely. Also, we will consider the possibility of using a 1031 exchange for this. If you are an investor interested in getting the maximum benefit from such decisions, you will definitely like this idea.
Does a New Construction NNN Property Qualify for a 1031 Exchange?
Yes! You can buy an NNN lease property under construction and qualify for a 1031 exchange. However, you need to follow the rules of the procedure. For new constructions, the regulations and the timeline are the same as any regular exchange.
In general, one of the main conditions is that you must identify in writing, within 45 days of your original investment property’s sale, the land and the building you intend to purchase. The value of the property should be equal to or greater than the value of the one you sold. Also, the entire purchase transaction must be closed within 180 days. The rules are not very simple and straightforward at first glance, but they are not very strict for the investor.
However, 1031 is invalid if you own the land and the house has not yet been built, as legally, it has been identified to the IRS as land and a building. As a better equivalent, you can buy a triple-net lease new construction property that has not been built yet, from the developer who already owns the land. In this case, when the construction works are complete, you can take the title and the ownership of the triple-net income property.
What Are the Benefits of Buying a New Construction NNN Property?
Investing in new construction property for a 1031 Exchange gives you certain unique possibilities. First of all, you will be able to gain the same capital gains tax deferral. Also, you can benefit from a brand-new building with practically no maintenance involved. Besides that, you will receive reliable monthly income for the full length of the lease.
The idea seems great, especially considering the fact that you will be provided with a steady income for 15 or 20 years of the lease. However, you need to be familiar with the conditions to get all the possible benefits. To summarize, the main benefits of buying a new construction triple-net property for you include:
the same capital gains tax deferral;
practically no maintenance;
reliable income for a very long period of time;
And so on. Already these points are enough to decide to invest in new constructions. And although all these factors make such investments appealing – what are the conditions under which they can qualify for a 1031 exchange? Let’s have a detailed look.
What Are the Most Suitable Types of New Constructions?
For the most profitable 1031 exchange opportunity, look for triple-net lease properties and invest in them. Most such properties are essential retailers, and their NNN leases are corporate-guaranteed which is beneficial for 1031 investments. The businesses are pretty stable, and the tenants include well-known brands, which makes investing an even more appealing idea. The companies keep on building new sites, as well as cooperation with their partners, to build market share. To invest in reliable property and be satisfied with your decision, choose NNN lease property with credit-worthy tenants.
What Are the Conditions of Using 1031 Exchange for New Construction?
Since, as we have already emphasized, this idea is extremely beneficial for you, it is important to understand how to make this purchase correctly and use 1031 exchange for new construction.
However, if you close on the triple-net lease property before construction is complete, the amount of construction work that has not been completed can be considered “boot.” The boot is cash that may be added to make the value of two traded properties equal. It means that the capital gains on the base amount are tax-deferred, but the boot is taxable.
If you are an investor, not afraid of risk, and interested in profit, buying a triple-net new construction property is a terrific idea. You will not only receive a steady income for a long time, which will ensure financial stability but also receive many other benefits. No maintenance will be required, and no high responsibility. If you value comfort, this option is for you. As the rules and the timeline are the same as in any 1031 exchange, you do not need to delve into additional complex regulations. Just following the standard procedure is enough.
This idea may sound unusual, but it is worth trying so as not to miss the benefits that it provides. Just by carefully following the rules and using savvy, you can win a lot in terms of finance. Also, with the opportunities that will then open up to you after the investment, you can do anything. This is a major opportunity for growth.
In addition, the purchase process itself is pretty convenient and simple. You will get all the benefits of such a deal and avoid unnecessary hassle and risks. Therefore, investing in new construction triple-net property will give you the opportunity to receive regular income and a lot of bonuses safely.