diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetProperty.java b/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetProperty.java
index b2eae187369..eddba6ad3fe 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetProperty.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetProperty.java
@@ -137,4 +137,9 @@ public class JetProperty extends JetTypeParameterListOwner implements JetModifie
     public ASTNode getValOrVarNode() {
         return getNode().findChildByType(TokenSet.create(VAL_KEYWORD, VAR_KEYWORD));
     }
+
+    @Nullable
+    public ASTNode getEqualsSign() {
+        return getNode().findChildByType(TokenSet.create(EQ));
+    }
 }
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiFactory.java b/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiFactory.java
index d375c9b7f0b..5a849bb7826 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiFactory.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiFactory.java
@@ -16,6 +16,7 @@
 
 package org.jetbrains.jet.lang.psi;
 
+import com.intellij.lang.ASTNode;
 import com.intellij.openapi.project.Project;
 import com.intellij.openapi.util.Pair;
 import com.intellij.psi.PsiElement;
@@ -24,6 +25,7 @@ import com.intellij.util.LocalTimeCounter;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 import org.jetbrains.jet.lexer.JetKeywordToken;
+import org.jetbrains.jet.lexer.JetTokens;
 import org.jetbrains.jet.plugin.JetFileType;
 
 import java.util.List;
@@ -32,6 +34,16 @@ import java.util.List;
  * @author max
  */
 public class JetPsiFactory {
+    public static ASTNode createValNode(Project project) {
+        JetProperty property = createProperty(project, "val x = 1");
+        return property.getValOrVarNode();
+    }
+
+    public static ASTNode createVarNode(Project project) {
+        JetProperty property = createProperty(project, "var x = 1");
+        return property.getValOrVarNode();
+    }
+
     public static JetExpression createExpression(Project project, String text) {
         JetProperty property = createProperty(project, "val x = " + text);
         return property.getInitializer();
@@ -48,6 +60,11 @@ public class JetPsiFactory {
         return Pair.create(property.findElementAt(5), property.findElementAt(7));
     }
 
+    public static ASTNode createColonNode(Project project) {
+        JetProperty property = createProperty(project, "val x: Int");
+        return property.getNode().findChildByType(JetTokens.COLON);
+    }
+
     public static PsiElement createWhiteSpace(Project project) {
         return createWhiteSpace(project, " ");
     }
diff --git a/examples/example-vfs/src/Test.kt b/examples/example-vfs/src/Test.kt
deleted file mode 100644
index 804f1a931a6..00000000000
--- a/examples/example-vfs/src/Test.kt
+++ /dev/null
@@ -1,8 +0,0 @@
-fun a(op: (Int) -> Int) {}
-fun b() {
-    a {it}
-    a {
-      it
-    }
-    2 + 2
-}
\ No newline at end of file
diff --git a/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetChangePropertyActions.java b/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetChangePropertyActions.java
new file mode 100644
index 00000000000..d278d9124eb
--- /dev/null
+++ b/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetChangePropertyActions.java
@@ -0,0 +1,58 @@
+package org.jetbrains.jet.plugin.refactoring.introduceVariable;
+
+import com.intellij.lang.ASTNode;
+import com.intellij.openapi.project.Project;
+import com.intellij.psi.PsiElement;
+import com.intellij.psi.PsiWhiteSpace;
+import org.jetbrains.annotations.NotNull;
+import org.jetbrains.jet.lang.psi.JetProperty;
+import org.jetbrains.jet.lang.psi.JetPsiFactory;
+import org.jetbrains.jet.lang.psi.JetTypeReference;
+import org.jetbrains.jet.lang.types.JetType;
+
+/**
+ * User: Alefas
+ * Date: 14.02.12
+ */
+public class JetChangePropertyActions {
+    private JetChangePropertyActions() {
+    }
+
+    public static void declareValueOrVariable(Project project, boolean isVariable, JetProperty property) {
+        ASTNode node;
+        if (isVariable) {
+            node = JetPsiFactory.createVarNode(project);
+        } else {
+            node = JetPsiFactory.createValNode(project);
+        }
+        property.getValOrVarNode().getPsi().replace(node.getPsi());
+    }
+
+    public static void addTypeAnnotation(Project project, JetProperty property, @NotNull JetType exprType) {
+        if (property.getPropertyTypeRef() != null) return;
+        PsiElement anchor = property.getNameIdentifier();
+        if (anchor == null) return;
+        anchor = anchor.getNextSibling();
+        if (anchor == null || !(anchor instanceof PsiWhiteSpace)) return;
+        JetTypeReference typeReference = JetPsiFactory.createType(project, exprType.toString());
+        ASTNode colon = JetPsiFactory.createColonNode(project);
+        ASTNode anchorNode = anchor.getNode().getTreeNext();
+        property.getNode().addChild(colon, anchorNode);
+        property.getNode().addChild(JetPsiFactory.createWhiteSpace(project).getNode(), anchorNode);
+        property.getNode().addChild(typeReference.getNode(), anchorNode);
+        property.getNode().addChild(JetPsiFactory.createWhiteSpace(project).getNode(), anchorNode);
+        anchor.delete();
+    }
+
+    public static void removeTypeAnnotation(Project project, JetProperty property) {
+        JetTypeReference propertyTypeRef = property.getPropertyTypeRef();
+        if (propertyTypeRef == null) return;
+        PsiElement identifier = property.getNameIdentifier();
+        if (identifier == null) return;
+        PsiElement sibling = identifier.getNextSibling();
+        if (sibling == null) return;
+        PsiElement nextSibling = propertyTypeRef.getNextSibling();
+        if (nextSibling == null) return;
+        sibling.getParent().getNode().removeRange(sibling.getNode(), nextSibling.getNode());
+    }
+}
diff --git a/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetInplaceVariableIntroducer.java b/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetInplaceVariableIntroducer.java
index 053ec261d05..cbdba98f6f0 100644
--- a/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetInplaceVariableIntroducer.java
+++ b/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetInplaceVariableIntroducer.java
@@ -16,15 +16,25 @@
 
 package org.jetbrains.jet.plugin.refactoring.introduceVariable;
 
+import com.intellij.openapi.application.Result;
+import com.intellij.openapi.command.WriteCommandAction;
 import com.intellij.openapi.editor.Editor;
 import com.intellij.openapi.project.Project;
+import com.intellij.psi.PsiDocumentManager;
 import com.intellij.psi.PsiElement;
 import com.intellij.psi.PsiFile;
 import com.intellij.psi.PsiNamedElement;
 import com.intellij.refactoring.introduce.inplace.InplaceVariableIntroducer;
+import com.intellij.ui.NonFocusableCheckBox;
 import org.jetbrains.annotations.Nullable;
 import org.jetbrains.jet.lang.psi.JetExpression;
 import org.jetbrains.jet.lang.psi.JetProperty;
+import org.jetbrains.jet.lang.types.JetType;
+
+import javax.swing.*;
+import java.awt.*;
+import java.awt.event.ActionEvent;
+import java.awt.event.ActionListener;
 
 /**
  * User: Alefas
@@ -34,14 +44,88 @@ public class JetInplaceVariableIntroducer extends InplaceVariableIntroducer<JetE
 
     private boolean myReplaceOccurrence;
     private JetProperty myProperty;
+    private boolean isVar;
+    private boolean myDoNotChangeVar;
+    private @Nullable JetType myExprType;
+    private JCheckBox myVarCheckbox;
+    private JCheckBox myExprTypeCheckbox;
 
     public JetInplaceVariableIntroducer(PsiNamedElement elementToRename, Editor editor, Project project,
                                         String title, JetExpression[] occurrences,
                                         @Nullable JetExpression expr, boolean replaceOccurrence,
-                                        JetProperty property) {
+                                        JetProperty property, boolean isVar, boolean doNotChangeVar,
+                                        @Nullable JetType exprType) {
         super(elementToRename, editor, project, title, occurrences, expr);
         this.myReplaceOccurrence = replaceOccurrence;
         myProperty = property;
+        this.isVar = isVar;
+        myDoNotChangeVar = doNotChangeVar;
+        myExprType = exprType;
+    }
+
+    @Nullable
+    protected JComponent getComponent() {
+        if (!myDoNotChangeVar) {
+            myVarCheckbox = new NonFocusableCheckBox("Declare variable");
+            myVarCheckbox.setSelected(isVar);
+            myVarCheckbox.setMnemonic('v');
+            myVarCheckbox.addActionListener(new ActionListener() {
+                @Override
+                public void actionPerformed(ActionEvent e) {
+                    new WriteCommandAction(myProject, getCommandName(), getCommandName()) {
+                        @Override
+                        protected void run(Result result) throws Throwable {
+                            PsiDocumentManager.getInstance(myProject).commitDocument(myEditor.getDocument());
+                            JetChangePropertyActions.declareValueOrVariable(myProject, myVarCheckbox.isSelected(),
+                                                                            myProperty);
+                        }
+                    }.execute();
+                }
+            });
+        }
+
+        if (myExpr != null) {
+            myExprTypeCheckbox = new NonFocusableCheckBox("Add type annotation");
+            myExprTypeCheckbox.setSelected(false);
+            myExprTypeCheckbox.setMnemonic('t');
+            myExprTypeCheckbox.addActionListener(new ActionListener() {
+                @Override
+                public void actionPerformed(ActionEvent e) {
+                    new WriteCommandAction(myProject, getCommandName(), getCommandName()) {
+                        @Override
+                        protected void run(Result result) throws Throwable {
+                            PsiDocumentManager.getInstance(myProject).commitDocument(myEditor.getDocument());
+                            if (myExprTypeCheckbox.isSelected()) {
+                                JetChangePropertyActions.addTypeAnnotation(myProject, myProperty, myExprType);
+                            } else {
+                                JetChangePropertyActions.removeTypeAnnotation(myProject, myProperty);
+                            }
+                        }
+                    }.execute();
+                }
+            });
+        }
+
+        final JPanel panel = new JPanel(new GridBagLayout());
+        panel.setBorder(null);
+        int count = 1;
+        if (myVarCheckbox != null) {
+            panel.add(myVarCheckbox, new GridBagConstraints(0, count, 1, 1, 1, 0, GridBagConstraints.NORTHWEST,
+                                                            GridBagConstraints.HORIZONTAL,
+                                                            new Insets(5, 5, 5, 5), 0, 0));
+            ++count;
+        }
+
+        if (myExprTypeCheckbox != null) {
+            panel.add(myExprTypeCheckbox, new GridBagConstraints(0, count, 1, 1, 1, 0, GridBagConstraints.NORTHWEST,
+                                                            GridBagConstraints.HORIZONTAL,
+                                                            new Insets(5, 5, 5, 5), 0, 0));
+            ++count;
+        }
+        panel.add(Box.createVerticalBox(), new GridBagConstraints(0, count, 1, 1, 1, 1, GridBagConstraints.NORTHWEST,
+                                                                  GridBagConstraints.BOTH,
+                                                                  new Insets(0, 0, 0, 0), 0, 0));
+        return panel;
     }
 
     @Override
diff --git a/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetIntroduceVariableHandler.java b/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetIntroduceVariableHandler.java
index b64705abd66..6e5382b8612 100644
--- a/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetIntroduceVariableHandler.java
+++ b/idea/src/org/jetbrains/jet/plugin/refactoring/introduceVariable/JetIntroduceVariableHandler.java
@@ -97,7 +97,7 @@ public class JetIntroduceVariableHandler extends JetIntroduceHandlerBase {
         }
         BindingContext bindingContext = AnalyzerFacade.analyzeFileWithCache((JetFile) expression.getContainingFile(),
                                                                             AnalyzerFacade.SINGLE_DECLARATION_PROVIDER);
-        JetType expressionType = bindingContext.get(BindingContext.EXPRESSION_TYPE, expression); //can be null or error type
+        final JetType expressionType = bindingContext.get(BindingContext.EXPRESSION_TYPE, expression); //can be null or error type
         if (expressionType instanceof NamespaceType) {
             showErrorHint(project, editor, JetRefactoringBundle.message("cannot.refactor.namespace.expression"));
             return;
@@ -156,7 +156,8 @@ public class JetIntroduceVariableHandler extends JetIntroduceHandlerBase {
                                         new JetInplaceVariableIntroducer(property, editor, project, INTRODUCE_VARIABLE,
                                                                          references.toArray(new JetExpression[references.size()]),
                                                                          reference.get(), finalReplaceOccurrence,
-                                                                         property);
+                                                                         property, /*todo*/false, /*todo*/false,
+                                                                         expressionType);
                                 variableIntroducer.performInplaceRefactoring(suggestedNamesSet);
                             }
                         }