Did you know you can utilize tax-free dollars in your exchange account to cover improvements or construction on the property you purchase? Indeed, you can, and every dollar spent on enhancing the property is considered on a one-to-one basis towards the purchase price of the property!

To fully defer your taxes, 1031 regulations mandate that you acquire a new replacement property of at least the same value as the property you sold. For instance, if you sell a $100,000 investment property to initiate your exchange and then purchase a new $80,000 investment property as your 1031 replacement property, with a shortfall of $20,000, you can allocate $20,000 for improvements. These improvements would be counted dollar-for-dollar toward the purchase price of your replacement property, meeting the 1031 regulations with a total acquisition cost of $100,000!