TM 1031 Exchange
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Reverse Exchange

A reverse 1031 exchange is one in which the replacement property is acquired before the relinquished property is sold. Although the paperwork involved in a reverse exchange is somewhat more complex than that of a standard delayed exchange, the basic concepts are similar--except the steps take place in reverse. The IRS has outlined safe harbor guidelines for reverse exchanges. The following information outlines some general principles, but investors should always seek expert advice in structuring their own transactions since exceptions may apply.

At the outset of a reverse 1031 exchange, a taxpayer will execute a Qualified Exchange Accommodation Agreement with a Qualified Intermediary (QI). This agreement sets forth the taxpayer's intention to meet IRS requirements regarding safe harbor reverse exchanges. This agreement should be executed no later than five days from the time the QI takes title to the replacement property.

The QI holds or "parks" the replacement property for up to 180 days. Within that time frame, title to the relinquished property must be transferred and the title to the replacement property taken by the taxpayer. The property to be relinquished must also be identified in writing within 45 days from the date the QI takes the title to the replacement property.

To learn more about reverse exchanges or to register for access to the TM 1031 Exchange database of investment properties, please call 1-877-4TM-1031. You may also send an email here

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