The short answer
No. Once you own the replacement, improvements paid for with exchange money are not like-kind property: Reg. section 1.1031(k)-1(e)(4) treats production after you receive the property as services. Re-titling the building to an accommodation titleholder to restart the clock does not work either, because Rev. Proc. 2004-51 excludes property you owned in the prior 180 days. The construction had to happen while the titleholder held title, before the deed reached you. What is left is to put the remaining money into other identified property or accept it as boot.
At a glance
| Post-title work | Not like-kind property, Reg. section 1.1031(k)-1(e)(4) |
|---|---|
| Re-parking the building | Barred if you owned it within the prior 180 days |
| Exchanging with yourself | Not an exchange, per the IRS cases cited in Rev. Proc. 2004-51 |
| Money still at the intermediary | Can buy other property on your identification list |
| Money paid out to you | Boot, taxable up to your realized gain |
| Where improvements can count | Built while a titleholder holds title, before transfer to you |
The exchange ends for a property at the moment you receive it
Reg. section 1.1031(k)-1(e)(4) says a transfer of relinquished property for services, 'including production services', is outside section 1031. It then applies that to construction: 'any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of a like kind.'
So the timing question is settled by the deed, not by your intentions or by the fact that money is still sitting with your intermediary. A roof, an addition or a unit renovation paid for after closing is a service purchased with your sale proceeds.
The narrower question of contractor invoices after closing is in using exchange funds for repairs after closing. This page deals with the structural fixes owners try next.
Re-titling the building to a titleholder fails on two separate grounds
The first ground is the look-back. Section 4.05, added by Rev. Proc. 2004-51, says the parking safe harbor 'does not apply to replacement property held in a QEAA if the property is owned by the taxpayer within the 180-day period ending on the date of transfer' to the titleholder.
The second ground survives even after 180 days. Rev. Proc. 2004-51 states that 'an exchange of real estate owned by a taxpayer for improvements on land owned by the same taxpayer does not meet the requirements of section 1031', citing DeCleene v. Commissioner, 115 T.C. 457 (2000), and adds that the parking safe harbor 'does not abrogate the statutory requirement' of an actual exchange.
The same reasoning blocks building on land you already hold, which is covered in using 1031 money to build on land you already own.
Worked example: $150,000 left with the intermediary after a $700,000 closing
Hypothetical, round numbers; run your own numbers with your CPA. You sold a rental for $850,000 with a $400,000 gain and closed on a $700,000 replacement on day 60, planning to spend the remaining $150,000 on renovations.
That $150,000 cannot reach the contractor as exchange money. If your 45-day list included another property, the intermediary can still use it to buy that property by day 180. If not, it is paid to you when the exchange period ends and is taxed as boot, here the full $150,000 because it is less than your gain.
The ordering of that boot between depreciation recapture and capital gain is explained in is boot taxed as recapture or capital gain first.
What the remaining money can still do before day 180
Buy more of what you identified. A second property or a fractional interest on your day-45 list is the only home for the money once the first replacement has closed.
A Delaware Statutory Trust interest is often the practical choice because subscriptions can be sized to the exact remaining dollar figure, provided the trust was named on your list. If it was not, nothing can be added after day 45 (leftover cash after an exchange).
Fund the renovation another way. Your own cash or a loan taken out after the exchange pays for the work and adds to basis; borrowing against the replacement once the exchange is complete is discussed in pulling cash out after a 1031.
Next time, let the titleholder own the building while the work is done
The structure that lets exchange dollars pay for construction is the improvement exchange: a titleholder acquires the replacement, you supervise the work, and the property comes to you with the improvements already in place. Rev. Proc. 2000-37 section 4.03 allows you to manage, supervise and act as contractor during that period.
Only the work in place at transfer counts, and the transfer must happen within the 180-day limits (do improvements have to be finished by day 180).
A simpler route on a smaller job is to have the seller finish agreed work before closing. Improvements already completed when you take title are part of the real property you receive, so the price you pay for them counts toward the replacement value.
Decide on either approach before the replacement closing is scheduled. Once the deed is recorded in your name, the option is gone for that property.
Related questions
Can I have the intermediary pay the contractor directly?
Paying a contractor for work on property you own is still paying for services. The direct payment does not change what is received, so it is treated as boot rather than like-kind property.
What if I wait 180 days and then park the building?
The look-back in Rev. Proc. 2004-51 would no longer apply, but you would still be exchanging with yourself, which the IRS says is not an exchange.
Can a related party own the land and lease it to a titleholder that builds?
Rev. Proc. 2004-51 says the IRS is continuing to study that leasehold arrangement. It is not inside any published safe harbor and needs specialized advice.
Are improvements I pay for myself a problem?
No. Spending your own money after closing simply adds to basis and depreciation; see renovating a replacement after closing.
Does this rule apply to repairs as well as improvements?
Any work bought with exchange money after you take title is a purchase of services rather than property, whatever it is called.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.