As the name implies, a 1031 Reverse Exchange is the opposite
of a 1031 Delayed/Forward Exchange. In a Reverse Exchange, new
replacement property is acquired before the investor sells their old
relinquished property. While this structure is more complex than a
Delayed/Forward Exchange (sell first, purchase second), it gives
investors added flexibility for tax deferral when planning their
To ensure a successful Reverse Exchange, here are some key
steps to keep in mind:
- Plan Ahead – A
Reverse Exchange is more complex than a Delayed/Forward Exchange, so
contact IPX1031® and your tax advisor as soon as possible.
- Closing – Do NOT close on any property without discussing
the transaction with IPX1031® first. A Reverse Exchange MUST be set up
and structured prior to any closing.
- Lenders – If the
investor is borrowing money to close on the replacement property, the
loan is actually made to the 1031 Company, with the Exchanger
guaranteeing it. 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.
- Cost – Reverse
Exchanges are complex and incur more liability than a Delayed/Forward
Exchange and hence have higher fees. To ensure that the cost of the
Reverse Exchange transaction is a viable solution, review the amount of
depreciation recapture and capital gains tax being deferred.
- Improvements – When
the replacement property needs repairs/improvements, a Reverse Exchange
with a Build to Suit component is a possible solution. Read more here.
- Timing – Most rules
that apply to Delayed/Forward Exchanges also apply to Reverse Exchanges
including 45 day identification and 180 day completion time frames.
- Experience – If all
of this information seems daunting, don’t worry. The IPX1031® team has
the experience and expertise to help navigate IRS Revenue Procedures,
rules and regulations.
For more details, read 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® 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 your IPX1031® to find out how this
valuable tool can work for you.
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