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Reverse Exchange

What Is a Reverse Exchange?

The majority of 1031 exchange transactions are structured as forward 1031 exchanges.   The real estate investor sells his or her relinquished properties first and then subsequently buys one or more replacement properties in a forward 1031 exchange.

Forward 1031 exchanges have specific time requirements, as described in a previous blog post, that real estate investors must abide by.  These time requirements can be challenging even for the more experienced real estate investor and are one of the reasons that real estate investors have started using reverse exchanges more frequently when structuring 1031 exchange transactions.

It is important that the real estate investor set-up the reverse exchange with a 1031 exchange Qualified Intermediary before any of the relinquished or replacement properties close. 

Buy First; Sell Later

Real estate investors can use a reverse exchange, (you may prefer to buy first to eliminate the pressure of having to identify your like-kind replacement property within the 45 calendar day identification deadline in a regular Forward 1031 Exchange), to acquire one or more replacement properties first and then subsequently sell the relinquished properties later within the 180-day exchange period.  The reverse exchange allows the investor to take all the time they need to find the right property for them and then acquire it first.  The reverse exchange deadlines do not start to run until the property has been acquired.

Reverse Exchange Deadlines

The real estate investor then has exactly 45 days to identify what they intend to sell (relinquished property) and match with the replacement property acquisition once the replacement property has been acquired and the title held by a 1031 Qualified Exchange Accommodations Title Holder (EAT).   The relinquished property is generally already known so the identification is just a formality.  The real estate investor then has an additional 135 days, for a total of 180 days, to complete the sale of the relinquished property in order to complete the reverse exchange.

The Reverse 1031 Exchange allows you to acquire your like-kind replacement property first and then subsequently list and sell your relinquished property within the prescribed 1031 Exchange deadlines.  It can be a great strategic tool when needed or prefe

If you have any questions about the exchange process, please give us a call.  We’ll be happy to answer whatever questions you might have on the entire Exchange process.

To learn more about §1031 Exchanges and how you can take advantage of this tax deferral opportunity, contact the experts at the Exchange Authority!

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