Reverse Exchange

Because of favorable tax law changes, Reverse Exchanges have become commonplace over the last few years; they can provide great opportunities and advantages in managing your real or personal property investments.
 
As the name suggests, the Reverse Exchange works through the “exchange”of property; what makes it a "reverse" is that it allows you to purchase new investment property first, then sell your existing investment.

Effective September 15, 2000, the IRS issued its Revenue Procedure 2000-37.  With this law, for the first time, the IRS sanctioned the Reverse Exchange with the "safe harbor" rule. Essentially, the IRS has approved a parking arrangement. If a real estate seller cannot sell their property in a timely enough fashion to perform a standard 1031 Exchange, they can now use a Qualified Intermediary to hold title on the property they wish to acquire.

Highlights of Reverse Exchanges

• Reverse Exchanges must be completed in 180 days. The 180 days starts from date the Intermediary purchases the replacement property for the taxpayer.

• Within 45 days of the purchased parked property, an identification form must be completed that identifies the relinquished property that is to be sold.
 
• A new document called a “Qualified Exchange Accommodation Agreement” must be completed by the Qualified Intermediary and the taxpayer.  Upon the sale of an investment property, one can defer all capital gains tax by purchasing a replacement property.

When a Reverse Exchange is the Answer

A Reverse Exchange is different from a 1031 Exchange in that it allows you to purchase property first, then sell your existing investment.  Reverse Exchanges are typically used in the following situations:

• The owner of investment property listed for sale finds the ideal replacement property before finding a buyer for the exchange property.
• After substantial real estate appreciation, the common complaint is lack of inventory; therefore, the real estate investor needs to purchase prime real estate as it enters the market.
• Real estate sellers are confident in being able to sell their exchange property but wish to avoid having to identify the replacement property in the 45 days required by a 1031 Exchange. Therefore, they purchase model replacement property first.

Reverse Exchanges - Getting Started

As soon as you realize that you may qualify for a reverse exchange, you should contact a qualified intermediary to discuss your situation. While these exchanges can be completed efficiently, the sooner you understand the necessary steps, the more likely you are to qualify.

We have helped hundreds of people complete reverse exchanges. They can be technically difficult but they are a wonderful tool for avoiding paying taxes and maximizing wealth. Please contact us today for more information at 239-333-1031 or email at info2007@1031company.com.