Category: Reverse Exchange

In considering selling an investment property in a hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a https://www.accruit.com/blog/%C2%ADare-tax-deferred-exchanges-real-esta… tax deferred exchange can feel like too small a window when supply is limited and there are many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules  provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges. 

Reverse 1031 Exchanges
Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “https://www.accruit.com/blog/primer-1031-exchanges-and-related-types-ex… 1031 exchange” and codified in the tax code. 
The reverse exchange technique essentially consists of an exchange facilitator holding or “parking” title to the new property on behalf of the taxpayer to avoid the taxpayer having simultaneous ownership of two properties. Immediately after the sale of the old property (but no later than 180 days) the exchange company affiliate transfers the  new property to the taxpayer. This ‘technically’ creates the proper sequence.
For example, an investor holding a multi-family rental property in Denver is looking to take advantage of the hot market to sell their property but is concerned about finding the right replacement property in Colorado Springs. That investor decided to wait to list their property and found the perfect property replacement 60 days later and purchased it through a Reverse Exchange with the help of an exchange facilitator. Upon closing on the new purchase, the investor can now continue earning rental income on the Denver property and has 180 days to close on the sale to defer their gain into the newly purchased Colorado Springs property. 
Build-to-Suit or Improvement Exchange
Build-to-Suit, also known as Construction-to-Suit or https://www.accruit.com/blog/can-property-improvement-costs-be-part-103… Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
In this type of exchange, the exchange facilitator parks the replacement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
As an example, an investor owns a commercial property in Salt Lake City and wants to invest in new vacation rental units in Park City. However, the only homes for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an https://www.accruit.com/blog/case-study-property-improvement-exchange-r… exchange of real estate whereby the purchase price and improvements to the vacation rental properties can be funded through the tax deferred proceeds of the sale of the commercial property in Salt Lake City. 
As you can see, tools are available to real estate investors to defer taxes and grow their portfolios in any environment. info@accruit.com

In considering selling an investment property in a hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a https://www.accruit.com/blog/%C2%ADare-tax-deferred-exchanges-real-esta… tax deferred exchange can feel like too small a window when supply is limited and there are many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules  provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges. 

Reverse 1031 Exchanges
Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “https://www.accruit.com/blog/primer-1031-exchanges-and-related-types-ex… 1031 exchange” and codified in the tax code. 
The reverse exchange technique essentially consists of an exchange facilitator holding or “parking” title to the new property on behalf of the taxpayer to avoid the taxpayer having simultaneous ownership of two properties. Immediately after the sale of the old property (but no later than 180 days) the exchange company affiliate transfers the  new property to the taxpayer. This ‘technically’ creates the proper sequence.
For example, an investor holding a multi-family rental property in Denver is looking to take advantage of the hot market to sell their property but is concerned about finding the right replacement property in Colorado Springs. That investor decided to wait to list their property and found the perfect property replacement 60 days later and purchased it through a Reverse Exchange with the help of an exchange facilitator. Upon closing on the new purchase, the investor can now continue earning rental income on the Denver property and has 180 days to close on the sale to defer their gain into the newly purchased Colorado Springs property. 
Build-to-Suit or Improvement Exchange
Build-to-Suit, also known as Construction-to-Suit or https://www.accruit.com/blog/can-property-improvement-costs-be-part-103… Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
In this type of exchange, the exchange facilitator parks the replacement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
As an example, an investor owns a commercial property in Salt Lake City and wants to invest in new vacation rental units in Park City. However, the only homes for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an https://www.accruit.com/blog/case-study-property-improvement-exchange-r… exchange of real estate whereby the purchase price and improvements to the vacation rental properties can be funded through the tax deferred proceeds of the sale of the commercial property in Salt Lake City. 
As you can see, tools are available to real estate investors to defer taxes and grow their portfolios in any environment. info@accruit.com

In considering selling an investment property in a hot real estate market through a 1031 exchange, owners are rightfully concerned about finding a suitable replacement property. The 45-day identification rules under a https://www.accruit.com/blog/%C2%ADare-tax-deferred-exchanges-real-esta… tax deferred exchange can feel like too small a window when supply is limited and there are many bidders in the market. (To read more about 1031 exchange process and rules, visit our 1031 exchange rules  provide alternatives to the traditional exchange that can be beneficial in a tight market. These alternatives are deemed Reverse 1031 Exchanges and Improvement 1031 Exchanges. 

Reverse 1031 Exchanges
Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence is often referred to as a “https://www.accruit.com/blog/primer-1031-exchanges-and-related-types-ex… 1031 exchange” and codified in the tax code. 
The reverse exchange technique essentially consists of an exchange facilitator holding or “parking” title to the new property on behalf of the taxpayer to avoid the taxpayer having simultaneous ownership of two properties. Immediately after the sale of the old property (but no later than 180 days) the exchange company affiliate transfers the  new property to the taxpayer. This ‘technically’ creates the proper sequence.
For example, an investor holding a multi-family rental property in Denver is looking to take advantage of the hot market to sell their property but is concerned about finding the right replacement property in Colorado Springs. That investor decided to wait to list their property and found the perfect property replacement 60 days later and purchased it through a Reverse Exchange with the help of an exchange facilitator. Upon closing on the new purchase, the investor can now continue earning rental income on the Denver property and has 180 days to close on the sale to defer their gain into the newly purchased Colorado Springs property. 
Build-to-Suit or Improvement Exchange
Build-to-Suit, also known as Construction-to-Suit or https://www.accruit.com/blog/can-property-improvement-costs-be-part-103… Exchange refers to a type of exchange done where some of the proceeds of the sale of the relinquished property will be used to complete improvements on the replacement property so that the taxpayer can finalize the exchange where both the value of the land and the enhanced improvements will count for the amount the taxpayer traded for. Investors may want to build on raw land or put in new heating, ventilating, air conditioning, roof, and windows on an existing property. All of which can qualify if executed properly.
In this type of exchange, the exchange facilitator parks the replacement property on behalf of the taxpayer while the desired improvements are made. Upon the earlier 180 days or the completion of the improvements, the entire value of the real property and improvements is conveyed directly to the taxpayer to complete their exchange.
As an example, an investor owns a commercial property in Salt Lake City and wants to invest in new vacation rental units in Park City. However, the only homes for sale need significant improvements to command a premium rental income. The investor can engage an exchange facilitator to consummate an https://www.accruit.com/blog/case-study-property-improvement-exchange-r… exchange of real estate whereby the purchase price and improvements to the vacation rental properties can be funded through the tax deferred proceeds of the sale of the commercial property in Salt Lake City. 
As you can see, tools are available to real estate investors to defer taxes and grow their portfolios in any environment. info@accruit.com

The majority of all 1031 exchanges are structured as either forward delayed exchanges or simultaneous exchanges. This is likely because of the perceived ease in completing such exchanges. But failing to consider a reverse exchange could be costing many taxpayers more than they think. Let’s compare the exchange strategies of two siblings, Jean, and her brother Jeremy.
Forward Exchange
Jeremy is certain that a forward delayed exchange is the best way to handle the exchange of his investment property. His current property – which we will call Strawberry Field – is worth around $400,000 and yields about $3,000 in monthly rental income.
On March, Jeremy enters into a contract to sell Strawberry Field for $400,000, with closing scheduled for April 1. Closing occurs without delay, after which the $400,000 in exchange proceeds are wired to his qualified intermediary (“QI”). The QI is paid $1,000 for its services, leaving Jeremy with $399,000 to reinvest. Jeremy promptly starts looking for appropriate replacement properties. He is targeting single-family or condo-style properties near the local university. On May 15, Jeremy submits his identification list, designating three potential replacement condos, each worth $200,000. By the end of the month, Jeremy has been able to negotiate contracts for the purchase of two of the condos. Closings for the condos are scheduled for July 31. As a result of some title-related delays, Jeremy is able to complete the acquisition of the two condos on August 31, 152 days, or a full five months after he sold Strawberry Field. Jeremy has lost five months of rental income, $15,000, and paid $1,000 to his qualified intermediary, for a “loss” of $16,000.
Reverse Exchange
Jean was always the more analytical of the siblings. She consulted her QI months before she began the process of upgrading her investment situation, and has determined that a reverse exchange better suits her needs. A reverse exchange is one that takes place in a reverse sequence, that is, the replacement property is effectively acquired before the old property is sold. While a taxpayer is not allowed to directly acquire the new property first, a http://https://www.accruit.com/blog/are-1031-reverse-tax-deferred-excha… exchange structure using an exchange company can accomplish the same thing. Jean’s current investment property – which we will call Solsbury Hill – is worth around $400,000 and yields about $3,000 in monthly rental income.
On February 1, Jean enters into a contract to acquire Paisley Park, a fully occupied rental property, for $400,000. Closing is scheduled for April 1. Jean coordinates with her QI to structure this acquisition as the replacement property for a reverse exchange. Accordingly, with the QI’s aid, she forms a new LLC – Paisley Park LLC – to take title to Paisley Park. Formation of the LLC cost her about $500 including the legal fees, and the QI’s related exchange accommodation titleholder (“EAT”) was listed as the sole member of the entity. On April 1, Paisley Park LLC acquires Paisley Park, which is generating approximately $3,000 per month. Allowing the EAT to take title on her behalf, she is not considered to have acquired it herself but has taken it off the market and preserved her ability to use it as her replacement property once the relinquished property is sold.
Jean enlists the aid of her friendly real estate agent and begins marketing the sale of Solsbury Hill. Jean and her real estate agent successfully negotiate the sale of Solsbury Hill, and on June 1 she enters into a contract to sell the property for $400,000, with closing scheduled for August 1. As a result of some financing related delays, Jean’s buyer is finally able to complete the acquisition of Solsbury Hill on August 31. This is closed as the first leg of a routine forward exchange using the QI. Once closed, Jean is ready to https://www.accruit.com/blog/case-study-forward-exchange-real-estate”>f… her exchange. At this time, the EAT transfers membership of Paisley Park LLC to Jean, officially cementing Jean as the owner of Paisley Park. From the time Jean acquired Paisley Park until she disposed of Solsbury Hill was five calendar months. During this time, she had combined cash flow on the two properties of $30,000. She did have to pay $500 for the formation of the LLC, and her exchange fees were about $4,000, so she had net income of $25,500 during the same time when Jeremy had net losses of $16,000 – a difference of over $41,000.
The Bottom Line
For exchangers who have the financial capacity to do so, structuring transactions as reverse exchanges is an option that is often overlooked. Among other things, it takes away the pressure of having to narrow down choices of possible replacement property within 45 days of a sale of the original property. Consulting with a QI, as well as tax and legal advisors before embarking on the sale of investment real estate is highly recommended. The skilled and experienced team at Accruit can help structure forward and reverse exchanges, and even non-safe harbor reverse exchanges that may take longer than 180 days to complete.

https://cta-redirect.hubspot.com/cta/redirect/6205670/420491a0-24fe-4b8… alt=”ask a qualified intermediary 1031 exchange questions” class=”hs-cta-img” height=”74″ id=”hs-cta-img-420491a0-24fe-4b8e-bf05-f2bf216b525f” src=”https://no-cache.hubspot.com/cta/default/6205670/420491a0-24fe-4b8e-bf0…; style=”border-width:0px;” width=”787″ />https://js.hscta.net/cta/current.js”> hbspt.cta.load(6205670, ‘420491a0-24fe-4b8e-bf05-f2bf216b525f’, {});

The majority of all 1031 exchanges are structured as either forward delayed exchanges or simultaneous exchanges. This is likely because of the perceived ease in completing such exchanges. But failing to consider a reverse exchange could be costing many taxpayers more than they think. Let’s compare the exchange strategies of two siblings, Jean, and her brother Jeremy.
Forward Exchange
Jeremy is certain that a forward delayed exchange is the best way to handle the exchange of his investment property. His current property – which we will call Strawberry Field – is worth around $400,000 and yields about $3,000 in monthly rental income.
On March, Jeremy enters into a contract to sell Strawberry Field for $400,000, with closing scheduled for April 1. Closing occurs without delay, after which the $400,000 in exchange proceeds are wired to his qualified intermediary (“QI”). The QI is paid $1,000 for its services, leaving Jeremy with $399,000 to reinvest. Jeremy promptly starts looking for appropriate replacement properties. He is targeting single-family or condo-style properties near the local university. On May 15, Jeremy submits his identification list, designating three potential replacement condos, each worth $200,000. By the end of the month, Jeremy has been able to negotiate contracts for the purchase of two of the condos. Closings for the condos are scheduled for July 31. As a result of some title-related delays, Jeremy is able to complete the acquisition of the two condos on August 31, 152 days, or a full five months after he sold Strawberry Field. Jeremy has lost five months of rental income, $15,000, and paid $1,000 to his qualified intermediary, for a “loss” of $16,000.
Reverse Exchange
Jean was always the more analytical of the siblings. She consulted her QI months before she began the process of upgrading her investment situation, and has determined that a reverse exchange better suits her needs. A reverse exchange is one that takes place in a reverse sequence, that is, the replacement property is effectively acquired before the old property is sold. While a taxpayer is not allowed to directly acquire the new property first, a http://https://www.accruit.com/blog/are-1031-reverse-tax-deferred-excha… exchange structure using an exchange company can accomplish the same thing. Jean’s current investment property – which we will call Solsbury Hill – is worth around $400,000 and yields about $3,000 in monthly rental income.
On February 1, Jean enters into a contract to acquire Paisley Park, a fully occupied rental property, for $400,000. Closing is scheduled for April 1. Jean coordinates with her QI to structure this acquisition as the replacement property for a reverse exchange. Accordingly, with the QI’s aid, she forms a new LLC – Paisley Park LLC – to take title to Paisley Park. Formation of the LLC cost her about $500 including the legal fees, and the QI’s related exchange accommodation titleholder (“EAT”) was listed as the sole member of the entity. On April 1, Paisley Park LLC acquires Paisley Park, which is generating approximately $3,000 per month. Allowing the EAT to take title on her behalf, she is not considered to have acquired it herself but has taken it off the market and preserved her ability to use it as her replacement property once the relinquished property is sold.
Jean enlists the aid of her friendly real estate agent and begins marketing the sale of Solsbury Hill. Jean and her real estate agent successfully negotiate the sale of Solsbury Hill, and on June 1 she enters into a contract to sell the property for $400,000, with closing scheduled for August 1. As a result of some financing related delays, Jean’s buyer is finally able to complete the acquisition of Solsbury Hill on August 31. This is closed as the first leg of a routine forward exchange using the QI. Once closed, Jean is ready to https://www.accruit.com/blog/case-study-forward-exchange-real-estate”>f… her exchange. At this time, the EAT transfers membership of Paisley Park LLC to Jean, officially cementing Jean as the owner of Paisley Park. From the time Jean acquired Paisley Park until she disposed of Solsbury Hill was five calendar months. During this time, she had combined cash flow on the two properties of $30,000. She did have to pay $500 for the formation of the LLC, and her exchange fees were about $4,000, so she had net income of $25,500 during the same time when Jeremy had net losses of $16,000 – a difference of over $41,000.
The Bottom Line
For exchangers who have the financial capacity to do so, structuring transactions as reverse exchanges is an option that is often overlooked. Among other things, it takes away the pressure of having to narrow down choices of possible replacement property within 45 days of a sale of the original property. Consulting with a QI, as well as tax and legal advisors before embarking on the sale of investment real estate is highly recommended. The skilled and experienced team at Accruit can help structure forward and reverse exchanges, and even non-safe harbor reverse exchanges that may take longer than 180 days to complete.

https://cta-redirect.hubspot.com/cta/redirect/6205670/420491a0-24fe-4b8… alt=”ask a qualified intermediary 1031 exchange questions” class=”hs-cta-img” height=”74″ id=”hs-cta-img-420491a0-24fe-4b8e-bf05-f2bf216b525f” src=”https://no-cache.hubspot.com/cta/default/6205670/420491a0-24fe-4b8e-bf0…; style=”border-width:0px;” width=”787″ />https://js.hscta.net/cta/current.js”> hbspt.cta.load(6205670, ‘420491a0-24fe-4b8e-bf05-f2bf216b525f’, {});

The majority of all 1031 exchanges are structured as either forward delayed exchanges or simultaneous exchanges. This is likely because of the perceived ease in completing such exchanges. But failing to consider a reverse exchange could be costing many taxpayers more than they think. Let’s compare the exchange strategies of two siblings, Jean, and her brother Jeremy.
Forward Exchange
Jeremy is certain that a forward delayed exchange is the best way to handle the exchange of his investment property. His current property – which we will call Strawberry Field – is worth around $400,000 and yields about $3,000 in monthly rental income.
On March, Jeremy enters into a contract to sell Strawberry Field for $400,000, with closing scheduled for April 1. Closing occurs without delay, after which the $400,000 in exchange proceeds are wired to his qualified intermediary (“QI”). The QI is paid $1,000 for its services, leaving Jeremy with $399,000 to reinvest. Jeremy promptly starts looking for appropriate replacement properties. He is targeting single-family or condo-style properties near the local university. On May 15, Jeremy submits his identification list, designating three potential replacement condos, each worth $200,000. By the end of the month, Jeremy has been able to negotiate contracts for the purchase of two of the condos. Closings for the condos are scheduled for July 31. As a result of some title-related delays, Jeremy is able to complete the acquisition of the two condos on August 31, 152 days, or a full five months after he sold Strawberry Field. Jeremy has lost five months of rental income, $15,000, and paid $1,000 to his qualified intermediary, for a “loss” of $16,000.
Reverse Exchange
Jean was always the more analytical of the siblings. She consulted her QI months before she began the process of upgrading her investment situation, and has determined that a reverse exchange better suits her needs. A reverse exchange is one that takes place in a reverse sequence, that is, the replacement property is effectively acquired before the old property is sold. While a taxpayer is not allowed to directly acquire the new property first, a http://https://www.accruit.com/blog/are-1031-reverse-tax-deferred-excha… exchange structure using an exchange company can accomplish the same thing. Jean’s current investment property – which we will call Solsbury Hill – is worth around $400,000 and yields about $3,000 in monthly rental income.
On February 1, Jean enters into a contract to acquire Paisley Park, a fully occupied rental property, for $400,000. Closing is scheduled for April 1. Jean coordinates with her QI to structure this acquisition as the replacement property for a reverse exchange. Accordingly, with the QI’s aid, she forms a new LLC – Paisley Park LLC – to take title to Paisley Park. Formation of the LLC cost her about $500 including the legal fees, and the QI’s related exchange accommodation titleholder (“EAT”) was listed as the sole member of the entity. On April 1, Paisley Park LLC acquires Paisley Park, which is generating approximately $3,000 per month. Allowing the EAT to take title on her behalf, she is not considered to have acquired it herself but has taken it off the market and preserved her ability to use it as her replacement property once the relinquished property is sold.
Jean enlists the aid of her friendly real estate agent and begins marketing the sale of Solsbury Hill. Jean and her real estate agent successfully negotiate the sale of Solsbury Hill, and on June 1 she enters into a contract to sell the property for $400,000, with closing scheduled for August 1. As a result of some financing related delays, Jean’s buyer is finally able to complete the acquisition of Solsbury Hill on August 31. This is closed as the first leg of a routine forward exchange using the QI. Once closed, Jean is ready to https://www.accruit.com/blog/case-study-forward-exchange-real-estate”>f… her exchange. At this time, the EAT transfers membership of Paisley Park LLC to Jean, officially cementing Jean as the owner of Paisley Park. From the time Jean acquired Paisley Park until she disposed of Solsbury Hill was five calendar months. During this time, she had combined cash flow on the two properties of $30,000. She did have to pay $500 for the formation of the LLC, and her exchange fees were about $4,000, so she had net income of $25,500 during the same time when Jeremy had net losses of $16,000 – a difference of over $41,000.
The Bottom Line
For exchangers who have the financial capacity to do so, structuring transactions as reverse exchanges is an option that is often overlooked. Among other things, it takes away the pressure of having to narrow down choices of possible replacement property within 45 days of a sale of the original property. Consulting with a QI, as well as tax and legal advisors before embarking on the sale of investment real estate is highly recommended. The skilled and experienced team at Accruit can help structure forward and reverse exchanges, and even non-safe harbor reverse exchanges that may take longer than 180 days to complete.

https://cta-redirect.hubspot.com/cta/redirect/6205670/420491a0-24fe-4b8… alt=”ask a qualified intermediary 1031 exchange questions” class=”hs-cta-img” height=”74″ id=”hs-cta-img-420491a0-24fe-4b8e-bf05-f2bf216b525f” src=”https://no-cache.hubspot.com/cta/default/6205670/420491a0-24fe-4b8e-bf0…; style=”border-width:0px;” width=”787″ />https://js.hscta.net/cta/current.js”> hbspt.cta.load(6205670, ‘420491a0-24fe-4b8e-bf05-f2bf216b525f’, {});

Section 1031 of the Internal Revenue Code provides taxpayers the ability to swap investment or business use real property for other like-kind property without realizing the gain, While these exchanges have been used for years by the most prudent of investors, they continue to gain traction due in part to the appreciation of real estate values. Executing a 1031 exchange can enable you to manage your real estate portfolio in a tax-efficient manner, allowing you to defer a portion or all of the taxable gains as your assets evolve. There’s no limit to the number of times you can do a 1031 exchange – you can defer the gain from one piece of real estate to another, again and again. You may increase your portfolio value with each swap, but you defer the tax until you cash out only then realizing your gain.
The Tax Code isn’t known for its simplicity, but it’s in the details where many investors find tremendous opportunities. Revenue rulings and other administrative rulings issued by the Internal Revenue Service & U.S. Treasury provide direction on various factual situations. These rulings are often relied on as precedent by taxpayers and their advisors. Revenue Procedure 2000-37 offers guidelines for taxpayers to acquire replacement property before the sale of their relinquished property. Referred to as “reverse exchanges”, this ruling goes on to inform a taxpayer they cannot own both properties at the same time, thus a “parking arrangement” must be employed – either the relinquished property or the replacement property is acquired and “parked” by an Exchange Accommodation Titleholder (also, known as an ‘EAT’). To park title means the deed of a parked property is recorded, evidencing a transfer of ownership to the EAT.
What does this mean? In the instance where the EAT acquires title to the replacement property, it typically does so with funds the taxpayer lends to the EAT – in most cases the taxpayer borrows to afford such an acquisition. Within 180 days, the https://www.accruit.com/blog/are-1031-reverse-tax-deferred-exchanges-re… sells the relinquished property and ownership of the replacement property is transferred to the taxpayer. This provides taxpayers an ideal solution if they cannot delay the closing of the replacement property.
“The reverse exchange helps investors meet several objectives…” says Martin Edwards, JD and Managing Director at Accruit. “…some are deterred by the 45-day identification period with a traditional tax-deferred exchange but implementing a parking arrangement minimizes risk while allowing an exchanger to find and secure the best property before disposition of their relinquished property.”
Many consider a seller’s market (where supply is low and demand is high) the typical situation in which to implement a reverse exchange, but in fact, its application is used in a variety of market conditions. Max Hansen, JD, CES and Managing Director at Accruit says, “as we know and from 30 years of experience, markets are cyclical…real property investors can feel pressure to perform when conditions are in favor of the seller, just as much as they may feel the same pressure when it’s a buyer’s market.” 
It’s the savvy real estate investors who spot fortuitous gain irrespective of which course the economy takes. Stock market volatility adds to an investor’s woes if stock prices are in flux. On the other hand, real estate’s relatively low correlation to stock market movements can make it a more reliable choice during a downturn, but it’s the quality of a property investment that dictates how well it performs in contrast to other securities.
Over a decade ago, the 2008 financial crisis and subsequent downturn that followed, saw a surge in reverse exchanges as investors sought to take advantage of low-interest rates, create wealth-building opportunities and make advantageous acquisitions. Many of those acquisitions are now paying dividends in today’s market. Despite what the current real estate environment may be, reverse exchanges can still be a powerful tool providing certainty during these uncertain times. There’s an old investing adage, that says past performance isn’t a guarantee of future performance, but real estate can prove profitable when stocks and bonds waver.
For more information on reverse exchanges and parking arrangements, please contact