• Justin Swift

The Reverse 1031 Exchange - The Complete Guide

In the present market, speculators need the capacity to hold onto beneficial land resources before the opposition outsmarts them. In the event that you contribute to utilizing 1031 trades, you realize you should sell your present venture property prior to buying substitution property.


Yet, imagine a scenario where you locate another speculation property before you sell the old. You would prefer not to botch your opportunity at gathering up a lot. This is the place where the Reverse 1031 trade comes in.


In an ordinary 1031 trade, you sell your present property first. At that point, you have 180 days to reinvest the benefits from the deal into another property to concede capital increases and different charges. The offer of the surrendered property happens before the acquisition of the new property.


A Reverse 1031 trade permits the inverse to happen. Working inside explicit rules, speculators can gain substitution property before they sell their present property. This exchange additionally permits suspension of every capital increase and different assessments in a similar way a normal 1031 does.


How does a reverse 1031 Exchange work?


Invert trades permit speculators to buy substitution property prior to selling the destined to-be surrendered property. Be that as it may, you are not permitted to at the same time hold title to both the new property and the property you need to sell. There are a few IRS leads your exchange must follow to begin and finish a fruitful opposite trade. It is fundamentally significant that you be knowledgeable in IRC Area 1031 that administers all trade exchanges.


So, underneath are a couple of pointers with respect to inverting trades. These give you a thought with regards to whether these contributing strategies are appropriate for you:


There are two types of reverse exchanges


1. An “exchange last” transaction allows an Exchange Accommodation Titleholder (EAT) to take title to the newly purchased property.

2. The “exchange first” option allows the EAT to take the title of the property you want to sell before the new property is purchased.


Either maneuver requires the use of an EAT (the Exchange Accommodation Titleholder) to park one of the properties to prevent the investor from holding the title to both properties at the same time. The IRS formed guidelines for reverse exchanges within their “safe harbor” rule as defined in Revenue Procedure 2000-37. In either type of reverse 1031 exchange, the transaction must be completed within 180 calendar days.


Rules for reverse exchanges


  • All parties involved must be notified that the sale/purchase of the investment property is part of a reverse 1031 exchange.

  • You must use a qualified intermediary (QI) before the replacement property is purchased. They will ensure the new property is titled correctly.

  • The QI establishes an LLC, which takes title to either the new property or the soon-to-be-relinquished property. Note: the LLC is the EAT.

  • In “exchange last” transactions, the EAT takes title to the replacement property at closing. The “exchange first” allows the EAT to take title to the soon-to-be relinquished property before the investor purchases the new property.

  • While the EAT owns the parked property and is considered the owner of the property for tax purposes, it does not have the advantages or obligations of owning the property.

  • The investor pays all expenses for that property and collects all income produced by the property until the reverse 1031 exchange is complete.

There are additional requirements for each type of reverse exchange other than the 180-day rule. So, before you do any type of 1031 exchange, check with your lender as well as a tax advisor and a qualified intermediary. Reverse 1031 exchanges are incredibly beneficial but are also somewhat complex. To reap the benefits, you must ensure compliance with all rules and regulations.


For additional and more detailed information about reverse 1031 exchanges, call

Granite Exchange today at 800-899-6959.

Our Certified Exchange Specialists® (CES®) can explain the process and guide you through every step of the exchange to ensure that the exchange is done properly.