With a 1301 exchange can you take part of your equity for home improvements on your new home?
by 
nopaycg
ANSWERS: 3
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I think you are asking about a 1031 exchange. yes you can. The hard was is to 1031 for construction (you have 180 days to use a portion of your funds for improvement but it has to be managed by an exchange company). The easy way is to roll ALL of the money in to the new purchase and take out an equity loan or line at closing.
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Any part of the proceeds from the sale of your relinquished property that you do not spend acquiring the replacement property could be considered as "boot", and therefore taxable. Once you own the replacement property, anything you do to it is not part of the exchange. You could structure the exchange as a "build-to-suit". The qualified intermediary acquires the property and holds it while the improvements are done, and then sells it to you at the increased price, which includes the original price plus whatever was spent on the improvements. It can be difficult to complete the improvements within the time frame, but I've seen it done. Be very careful about refinancing replacement property in a 1031 exchange immediately after you acquire said property. It could be a red flag to the IRS, implying that you are cashing out. Plan any such event carefully with a CPA or Tax Attorney, and I recommend the latter. Your CPA knows how it will all add up and balance, but the Tax Attorney knows more about the proper way things must be structured.
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1031 is NOT an option on PERSONAL property! The house would have to be a rental, then exchanged for other business property! And any cash (boot) taken on a 1031 exchange is taxable!
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