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1031 Reverse Exchange

Sometimes an investor wishing to engage in a 1031 exchange will have a chance to identify and purchase a replacement property before selling the property to be relinquished. Since IRS regulations do not allow the seller to engage in an exchange for property that is already owned, this creates something of a dilemma for the investor. The dilemma is solved by a reverse 1031 exchange.

The IRS has outlined "safe harbor" procedures in which a taxpayer may use an Exchange Accommodation Titleholder (EAT) to avoid technically owning the replacement property before the relinquished property is sold. The Qualified Intermediary establishes the EAT and parks the property for the taxpayer by having the EAT take title to it. The EAT holds on to the replacement property until the property to be relinquished has been sold.

In order to qualify for the IRS safe harbor, the relinquished property must be sold within 180 days from the time the EAT takes title to the replacement property--and title on the replacement property must be conveyed to the taxpayer within that time frame. The property to be relinquished must also be identified within 45 days from the EAT's purchase of the replacement property. Non-safe harbor reverse 1031 exchanges may also be transacted.

The staff at TM 1031 Exchange has expertise in both safe harbor and non safe harbor 1031 reverse exchanges. We can help guide you through the steps to complete one of these exchanges. For more information on reverse exchanges or to register for our services, please call us at 1-877-4TM-1031 or send an email here

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