Be Prepared If Your 1031 Transaction Needs to Go in Reverse

1031 Exchange transactions have been on the rise this year. What’s also been trending is the sharp increase in the need for Reverse Exchanges. With limited available inventory and market aggressiveness, or even just wanting to secure your ideal Replacement Property, you may find yourself in a situation where a Reverse Exchange is your best investment option.

As the name implies, a Reverse Exchange is the opposite of a Delayed/Forward Exchange. In a Reverse Exchange, new Replacement Property is acquired before the investor sells their Relinquished Property. While this structure is more complex than a Delayed/Forward Exchange (sell first, purchase second), it may give you the advantage you need to make the most solid of investments.

To ensure a successful 1031 Exchange or Reverse Exchange, here are some key components to keep in mind:


1031 Exchange
Reverse Exchange
Plan Ahead


Look for Replacement Property early and do not hesitate to negotiate that closing.
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If you find you need or want a Reverse Exchange, it is more complex than a Delayed/Forward Exchange. Contact IPX1031 and your tax advisor as soon as possible to begin structuring it.

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Closing


Do NOT close on any property without discussing the transaction with IPX1031 first.
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A Reverse Exchange MUST be set up and structured prior to any closing.  IPX1031 must go on title to one of the properties (your purchase or sale) to avoid the problem of the taxpayer owning both properties at the same time.

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Lenders


If the Exchanger is borrowing money to close on the Replacement Property, the loan is actually made to the 1031 Company, with the Exchanger guaranteeing it.

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Some lenders are not familiar with or unwilling to lend on this type of structure, so it’s important to start those discussions early in the transaction.

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Cost


To ensure that an Exchange transaction is a viable solution, review the amount of depreciation recapture and capital gains tax being deferred with your tax advisor or attorney, such that the tax savings justify the transaction costs.
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Reverse Exchanges are much more complicated than a Delayed/Forward Exchange and hence have higher fees.

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Improvements


When the Replacement Property needs repairs/improvements, a Reverse Exchange with a Build-to-Suit component is a possible solution. Read more here.

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Timing


45 day identification and 180 day completion time frames.
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Most rules that apply to Delayed/Forward Exchanges also apply to Reverse Exchanges.

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Regardless of the type of 1031 Exchange you choose, our IPX1031 specialists are standing by to help make your transaction a smooth process. For more details, read Planning Ahead for a Successful Exchange and How to Initiate a Reverse Exchange. As with all investments and wealth maintaining strategies, we advise you to seek the advice of your legal and tax advisors for your specific situation. IPX1031 is the largest national qualified intermediary providing a full suite of services. IPX1031 also has the largest and most experienced Reverse and Improvement Exchange division in the country specializing in transactions for REITS, life insurance companies, businesses and individual investors. Contact IPX1031 to discuss your 1031 Exchange solution.

©2017 Investment Property Exchange Services, Inc. — a Fidelity National Financial Company