Step 1 · Sell & Fund the QI
An improvement (or build-to-suit) exchange starts the same as a forward exchange: you sell your relinquished property and the QI receives the proceeds — but you'll use those funds to buy land plus build improvements.
Step 2 · Identify Land + Improvements
Within 45 days you identify the replacement land — and you describe the improvements that will be built. The IRS counts the property's value at completion, not the raw land, toward your exchange.
Step 3 · EAT Holds Title for Construction
Because the IRS won't count post-acquisition improvements toward your exchange, an Exchange Accommodation Titleholder takes legal title up front. The EAT pays contractors using QI funds while the project is built.
Step 4 · Build Within 180 Days
Construction has to be substantially complete by day 180 of the exchange window. Improvements made after that day don't count toward the exchange basis — even if you keep the property.
Step 5 · Substantially Complete by Day 180
"Substantial completion" means the property is structurally sound and useable for its intended purpose. Final paint or punch-list items can come later, but the core build has to land within the 180-day window.
Step 6 · Take Title to Land + Improvements
Once the build hits substantial completion, the EAT deeds the finished property to you. Your exchange basis includes the land cost plus every dollar of improvements built within the 180-day window.