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Do a Reverse Exchange
"You can purchase the replacement property first"
"New Reverse Exchange Safe Harbor Finalized”
A reverse exchange occurs when the replacement (purchase) property is acquired prior to closing on the relinquished (sale) property. Exchangers nationwide can now confidently proceed with a "reverse exchange" that adheres to the Revenue Procedure 2000-37 released on September 15, 2000. The new safe harbor offers welcome clarification and will make the reverse a more popular and accepted exchange variation!
Highlights of the Reverse Guidelines
The Accommodation Titleholder, through a "qualified exchange accommodation arrangement" (QEAA), may hold title to either the relinquished or replacement propertyThe Exchanger must have the requisite intent that the purchase of the replacement property be part of an exchange.Within 45 days of purchasing the replacement property, the Exchanger must "identify" (subject to the rules in the ?1031 tax code) the relinquished property to be sold in the exchange.The reverse exchange must be completed within 180 calendar days.
The Exchanger may loan or advance funds to the Intermediary for the purchase of the replacement property.The Exchanger may supervises improvements, act as a contractor or assume other management functions.
Additional Issues
If financing is involved, the lender should be consulted since the Intermediary must hold title to property.The Exchanger may enter into a lease or management agreement with the Intermediary.The reverse exchange may be combined with an "Improvement Exchange" to allow for additional construction improvements. However, the 180-day time limit will apply.Reverse exchanges utilizing a "parking arrangement" outside this procedure may still be able to qualify for tax deferral.It is critical to thoroughly scrutinize the way (such as a separate LLC for each Exchanger) the Intermediary holds title to property.
Information Provided by
Asset Preservation, Inc.
National Headquarters: 800-282-1031 or info@apiexchange.com
This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.
© 2000 Asset Preservation, Inc.
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