Expanding the Reach of 1031s
Is a 1031 Exchange in your future? Do you have an investment property to sell and are looking for a property to purchase? What would happen if you find the ideal replacement property before you can sell and close on your current property? Paying taxes is not the perfect option, but a Reverse Exchange could be the perfect solution.
With a Reverse Exchange, the taxpayer must not own both properties involved in the transaction (the property intended to sell and the property intended to buy) at the same time. To avoid that situation, the Qualified Intermediary will create a single purpose entity to hold title to one of the properties involved in the transaction – usually the replacement property. This entity is called an Exchange Accommodation Titleholder (EAT). The EAT can hold the property for up to 180 days, giving the taxpayer time to sell their relinquished property. When that’s sold, the taxpayer then acquires the replacement property from the EAT to complete the 1031 Exchange. Read Rev. Proc. 2000-37 here.
Sometimes taxpayers want to buy a property and make improvements to it such as a new roof, kitchen, etc. Surprisingly, 1031 Exchange funds cannot be used to improve property already owned by the taxpayer, meaning the improvements need to be completed prior to taking title to the property. In those situations, a Parking Exchange is perfect. To solve the dilemma, the Qualified Intermediary creates an EAT to hold title to the replacement property. The taxpayer, as project manager, supervises all the improvements directly. At the end of the 180 day exchange period, the taxpayer acquires the replacement property, which has now been improved using 1031 Exchange proceeds.
Reverse and Parking Exchanges are much more complicated than typical delayed 1031 Exchanges. We are finding that more and more investors and companies are using this type of exchange to meet their transactional needs.
IPX1031 boasts 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. Along with our Reverse and Improvement Exchange division, our team of dedicated attorneys and expert exchange specialists, IPX1031 is here to offer you unparalleled service strengthened with core expertise to get your exchange completed in a timely and professional manner.
IPX1031® Reverse & Improvement brochure download here.
To start an exchange, visit here.