What Is a Reverse 1031 Exchange?
A “reverse” 1031 exchange is a way for real estate investors to swap one like-kind property for another without incurring capital gains taxes. In simultaneous or delayed exchanges, an investor sells a property and then purchases a new one with the proceeds from their property sale. The process is reversed when a reverse exchange is facilitated.
An investor swapping properties in a reverse 1031 exchange must use a qualified intermediary (QI) to transfer funds from the relinquished property to what is referred to as the “parked property.” An Exchange Accommodation Titleholder (EAT) is also used to acquire and hold the parked property. The EAT then takes title to either the relinquished property or replacement property under a Qualified Exchange Accommodation Arrangement (QEAA).
The same 45-day identification period and 180-day exchange period set forth by the IRS for other types of exchanges also apply to reverse 1031 exchanges. The rules require that written identification be delivered to the QI or EAT, the identified relinquished property be sold, and the parked replacement property be transferred to the investor to complete the exchange within 180 days of parking the replacement property. Pure reverse exchanges, where the investor owns both the relinquished and replacement properties at the same time, are not permitted.
For help facilitating a 1031 exchange, contact 1031 Federal Exchange today. Contact our experienced qualified intermediaries by calling us at 513-488-1135 or inquiring online. We serve clients nationwide.