The I.R.S. Regulations say that the replacement property can be property to be "produced" as "produced" is defined in Sec. 263A(g)(1). See Regs. Sec. 1.1031(k)-1(e)(1). Identification rules in Regs. Sec. 1.1031(k)-1(c) apply, especially (c)(3) thereof. See Regs. Sec. 1.1031(k)-1(e)(2)(i). This requires an acceptable legal description of the land and as much detail as possible regarding construction. Id.

Regs. Sec. 1.1031(k)-1(e)(3) governs "receipt of replacement property to be produced." For purposes of Regs. Sec. 1.1031(k)-1(d)(1)(ii) (receipt of replacement property) variations due to "usual or typical production changes" do not matter, but "substantial changes" will mean that the replacement property received will not be considered to be substantially the same property as the property identified. See Regs. Sec.1.1031(k)-1(e)(3)(i).

Regs. Sec. 1.1031(k)-1(e)(3)(iii) deals with completion rules and is a "mouthful." If the construction is not completed "on or before the date the taxpayer receives the property," this regulation can be a problem. Apparently, this means that, to the extent construction on the replacement real property is not finished when the taxpayer acquires title to the replacement property, the transaction will not constitute a tax deferred exchange. Only the land and improvements finished at the time title is so transferred can qualify for replacement property status. See Regs. Sec. 1.1031(k)-1(e)(5)’s example. Thus, (1) the replacement property seller must construct all of the improvements before title is conveyed to the taxpayer or (2) pending completion of construction the title can be conveyed to (a) a qualified intermediary, (b) a single asset corporation of the qualified intermediary or (c) another qualified intermediary or subsidiary.

The "build to suit" rules are set forth in the above cited regulations and are discussed in T. Cuff, Deferred Exchange Regulations, CCH, text at n.n. 326, et seq. (1991).