Overview of the Reverse 1031 Exchange
A Reverse 1031 Exchange is when the Investor must acquire their like-kind replacement property BEFORE the sale of their relinquished property; since the Investor is acquiring their like-kind replacement property first, doing so allows avoidance of 1031 exchange deadlines. In addition, a Reverse 1031 Exchange allows the Investor additional time to act on an investment opportunity before they even have time to consider selling or listing their current relinquished property. Many investors utilize the reverse exchange strategy for the flexibility they offer when setting up the buying and selling real estate.
A reverse exchange also minimizes the risk to the Investor by allowing them to acquire the like-kind replacement property at the beginning of the transaction instead of the end; the Investor has additional time to identify which relinquished property they want to sell – 45 days in total – as well as 135 additional calendar days on top of that (for 180 days in total) to compete the sale. This can be a great strategic tool when used properly. Deadlines for a Reverse 1031 Exchange are essentially the same as in a forward 1031 Exchange transaction; however, the deadlines for a Reverse Exchange allow the Investor far more flexibility since they have already identified what they are going sell as their relinquished property; the remainder of the time up until the deadline can be spend marketing and selling said property.
With the advantages of a Reverse Exchange also comes complications; most prominent are the fees, which can be expensive, so any investor willing to engage in a Reverse Exchange needs to figure out, with the help of a tax professional, the cost-to-projected-profit ratio and see if a Reverse 1031 Exchange transaction is justified.
The Exchange Last Reverse 1031 Exchange is the most popular structure of a Reverse Exchange; the Investor’s like-kind replacement property is acquired and held or "parked" by the Exchange Accommodation Titleholder ("EAT") and a simultaneous or concurrent 1031 Exchange is completed later at the close of the Investor’s relinquished property sale transaction. This provides the Investor with advanced structuring capabilities as well as flexibility in terms of structuring and financing their Reverse 1031 Exchange transaction. You may need to shop around for lenders who are willing to work with you on an Exchange Last Reverse 1031 Exchange, as most lending institutions worry about the Exchange Accommodation Titleholder holding or parking title to the like-kind replacement property that will be used as collateral for the loan.
Disclaimer: 1031 exchange made simple does not guarantee the performance of the QI's in our referral network and we can not be held liable for any misrepresentations or mistakes in regards to a 1031 exchange by one of the QI's that we refer to you. 1031 Exchange made simple does not provide tax advice nor can we make representations regarding the tax consequences of an exchange transaction. 1031 Exchange made simple is a 1031 QI Referral Network. 1031 made simple is not responsible (in any way) for the performance, creditability, and financial condition of any QI in our network. In this new economic environment it is imperative that all potential 1031 exchange customers do their own due diligence and research on any QI that they may use, on a 1031 exchange. Please verify and check the validity of the Bonding and Insurance of your QI. It may be wise to have your 1031 exchange accounts set up as separate, individual customer accounts. Our web site is to be used as a information based web site only. All parties doing a 1031 exchange must consult their tax advisors or attorney for this information.
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