Can you roll the gain from a rental into a brand‑new home in Westerly without paying capital gains today? If you are eyeing a specific lot or spec home, timing and structure are everything. In this guide, you will see how a 1031 exchange can work with new construction in Westerly, what to watch for in Colorado, and the exact steps to keep your exchange on track. Let’s dive in.
1031 basics you need to know
A 1031 exchange lets you defer capital gains tax when you swap real property held for investment or business use for other like‑kind real property. You must identify replacement property within 45 days and complete the acquisition within 180 days. You report the exchange on IRS Form 8824. See the IRS overview of the 45‑day and 180‑day rules.
Like‑kind for real property is broad, and improved or unimproved land generally qualifies. Both the relinquished and replacement properties must be held for investment or business, not primarily for resale. The IRS explains the modern like‑kind rules for real property in its guidance following TCJA.
How 1031s work with new construction
You have two primary structures when the replacement is a new build:
- Forward improvement exchange. You sell the relinquished property first and place proceeds with a Qualified Intermediary. Improvements to the identified replacement property happen during the 180‑day window, often using an EAT under a QEAA. See this step‑by‑step improvement exchange guide.
- Reverse improvement exchange. You secure the lot or in‑progress home before you sell by having an Exchange Accommodation Titleholder “park” title while you sell the relinquished property. You then receive the improved property from the EAT within 180 days. Learn more about reverse exchanges.
Both rely on the IRS safe harbor for parking arrangements. The EAT and QEAA must be set up correctly and on time, per the IRS Rev. Proc. safe harbor.
Timelines and Westerly builder realities
The 45‑day identification and 180‑day acquisition deadlines are strict. If your home will not be ready within 180 days, you need a reverse or improvement structure or you risk a failed exchange. The IRS details the timing in its FAQ.
Westerly is actively building, with single‑family homes and models showing 2023–2025 delivery windows. Build timelines vary by plan and lot, which is why you should confirm schedules early with the sales team. See current community activity on the Westerly community page.
Setup checklist before you list or write offers
- Engage a 1031‑experienced CPA or attorney and a Qualified Intermediary early. You must have the QI set before your sale closes for a forward exchange, or have the reverse/improvement structure in place if you will acquire first. Review the IRS timing rules.
- Speak with the Westerly builder’s sales and legal teams. Confirm in writing that they will allow assignment to an EAT/titleholder LLC and cooperate with QEAA language. The improvement exchange guide outlines why this matters.
- If you need a construction loan, get lender buy‑in early. Many lenders require the borrower to match the titleholder. Expect tighter terms and extra documentation. See common financing considerations in this improvement exchange overview.
- Address Colorado withholding if you are a nonresident seller. Proper use of Colorado forms such as DR 1083 can prevent a 2 percent withholding holdback at closing. Review state forms on the Colorado Department of Revenue site.
- Identify correctly and track deadlines. Work with your QI on identification language for improvements and consider filing a tax return extension if needed. See risk management tips for 45/180 timing.
Contracts, loans, and title mechanics
Improvement and reverse exchanges often use an EAT that temporarily holds title in a QEAA. Your purchase and construction contracts must allow assignment to that titleholder, and the builder must accept payments consistent with the structure.
If you had debt on the relinquished property, you generally need equal or greater debt on the replacement to avoid taxable boot. Cash boot or mortgage boot can trigger tax, even when you meet the 45/180 timing. The IRS discusses boot and other exchange mechanics in its FAQ.
Colorado and Westerly details to plan for
If you are a nonresident selling Colorado real estate, the state may require a 2 percent withholding at closing. Many 1031 sellers can avoid withholding by completing DR 1083 and coordinating with the title company before closing. Review the forms on the Colorado DOR site.
Westerly spans the Erie and Frederick area, primarily in Weld County, and is served by St. Vrain Valley RE‑1J. Listings may show Erie or Frederick in the address. Share the exact parcel and county with your QI and title team so your QEAA documents are accurate. See the Westerly community details.
Master‑planned communities can have staged lot releases, HOA setup, and amenity buildouts that affect start dates and closings. Confirm any HOA fees, special assessments, and timing requirements that could impact your escrow timeline.
Costs, risks, and how to plan
Plan for higher costs than a simple forward exchange. Expect QI and EAT fees, added legal work, potentially higher financing costs, and a more complex escrow. This improvement exchange overview lists common cost drivers.
Primary risk is timing failure on the 45/180 deadlines. Other risks include builder refusal to allow assignment, lender limits on EAT borrowing, title restrictions, and accidental boot. Mitigate risk with early coordination, written approvals, and conservative timelines.
The takeaway
You can use a 1031 exchange to buy new construction in Westerly, but it requires precise timing, the right exchange structure, and builder and lender cooperation. Nail down schedules, contract language, and state paperwork early. Then track the 45‑day identification and 180‑day closing dates without exception.
If you want a local, organized plan for a Westerly new build, connect with Jonathan Pierotti to align your purchase strategy with your tax and exchange team.
FAQs
Can you buy a Westerly lot before selling and still do a 1031?
- Yes, but you typically need a reverse or improvement exchange with an EAT under the IRS safe harbor, as outlined in this reverse exchange overview.
What if your new construction will not finish within 180 days?
- You must structure a reverse or improvement exchange so title can pass to you within 180 days, or the exchange fails; see timing risk guidance.
How does Colorado withholding affect 1031 sellers?
- Nonresident sellers may face a 2 percent withholding at closing but can often avoid it by using the state’s 1031 exemption procedures and DR 1083.
What should you confirm with Westerly builders about assignments?
- Get written builder approval for assignment to an EAT/titleholder LLC, cooperation with QEAA language, and any HOA or community timing that could affect closing; see improvement exchange steps.
Where do you report the exchange to the IRS?
- Report the transaction on IRS Form 8824 and follow the IRS 45‑day and 180‑day rules.
