IPX1031 Insight Blog

Be Prepared If Your 1031 Transaction Needs to Go in Reverse

1031 Exchange transactions continue to be on the rise. What’s also trending is the need for Reverse Exchanges. With limited available inventory and the need to secure your ideal Replacement Property, you may find yourself in a situation where a Reverse Exchange is your best investment option.

 

 

What is a Reverse Exchange?

A Reverse Exchange allows a taxpayer to purchase new Replacement Property before selling their Relinquished Property while still being able to defer the taxes that would normally be due from the sale of the Relinquished Property.

 

Unlike a Delayed (Forward) Exchange, a Reverse Exchange is essentially a parking transaction. Since the Taxpayer cannot own both properties at the same time, one property is parked with an Exchange Accommodation Titleholder (EAT). In a typical Reverse Exchange, new Replacement Property is acquired by the EAT before the investor sells their Relinquished Property. While this structure is more complex than a Delayed Exchange, it can give you the advantage you need to maximize your investments.


Important Considerations for Reverse Exchanges and 1031 Exchanges

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

 1031 ExchangeReverse Exchange

PLAN AHEAD

  
Look for Replacement Property early and do not hesitate to negotiate the purchase
A Reverse Exchange is more complex than a Delayed Exchange. If you need a Reverse Exchange, contact IPX1031 and your tax advisor as soon as possible to begin structuring it 

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. IPX1031 must go on titIe to one of the properties (your purchase or sale) to avoid the problem of the taxpayer owning both properties at the same time 

LENDERS

  
If the Exchanger is borrowing money to acquire the Replacement Property, the Ioan is actually made to the EAT, 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 contact the lender and start those discussions early in the transaction 

COST

  
To ensure that an Exchange transaction makes sense, review the amount of depreciation recapture and capital gains tax being deferred with your tax advisor or attorney to ensure that the tax benefits justify the transaction costs
Reverse Exchanges are much more complicated than a Delayed Exchange, resulting in higher fees and costs 

IMPROVEMENTS

  
When the Replacement Property needs repairs or requires improvements to increase the exchange value, a Reverse Exchange with a Build-to-Suit component is an excellent solution. 

TIMING

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

IPX1031 – Your Reverse 1031 Solution

Regardless of the type of 1031 Exchange you need, 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, you should seek the advice of your own 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.


Read More

Reverse and Improvement Exchange Frequently Asked Questions
Reverse & Improvement brochure
Reverse book
Why are Reverse 1031 Exchanges More Complicated?
Capital Gains Estimator
IPX1031 Knowledge Center

Locate a 1031 Expert In Your Area

Recent Posts

Can You Change Spousal Ownership in a 1031 Exchange?

Will Adding/Deleting My Spouse Impact My 1031 Exchange?Generally, no changes should be made to the way title to property is held shortly before or after property is sold/purchased via a 1031 Exchange. For example, if title to an apartment building is held by Lisa and...

1031 Update on Capitol Hill – April 2024

1031 Coalition Letter & DC Fly-In​ April 17, 2024 IPX1031, in conjunction with our industry trade organization the Federation of Exchange Accommodators (FEA), worked with the Real Estate Roundtable to circulate an updated 1031 Coalition letter to leaders of...

The Build to Suit Exchange

The build-to-suit exchange, also referred to as a construction or improvement exchange, gives the Exchanger the opportunity to use all or part of the exchange funds for construction, renovations or new improvements to the Replacement Property.

1031 Update on Capitol Hill – March 2024

Biden Releases FY2025 Budget Proposal March 14, 2024 Consistent with its prior budget proposals, the Biden Administration has proposed capping the gain that can be deferred through a like kind exchange at $500,000 per taxpayer ($1,000,000 for a married couple filing...

Pin It on Pinterest