I started out discussing why you would use a reverse 1031 exchange, including the situations where we see reverse 1031 exchanges used the most often and then addressed some of the ways that reverse 1031 exchanges can reduce risks when using 1031 exchanges.
Overview of Reverse 1031 Exchanges
This post will provide you with a very brief and concise overview of reverse 1031 exchange transactions. You can learn more about reverse 1031 exchange transactions by reading our in depth article entitled Introduction to Reverse 1031 Exchanges, which includes more information on reverse 1031 exchange structures, strategies and compliance issues.
Legal Disclosure
You know there always has to be a legal disclosure. It's a sign of the times.
1031 Exchange transactions, especially reverse 1031 exchanges, are complex income tax-deferred strategies, so you should always seek your own competent legal, financial and tax advisors' opinion before entering into any 1031 exchange transaction.
Exeter Reverse 1031 Exchange Services, LLC and its affiliate companies are always available to assist you in planning and structuring your reverse 1031 exchange.
Reverse 1031 Exchanges
There are many reasons you might find yourself in a position where you must acquire or would prefer to acquire your like-kind replacement property first in your 1031 Exchange. You might unexpectedly find an investment opportunity that you must act on before you even have time to consider selling your relinquished property. The sale of your relinquished property may unexpectly collapse and you do not want to lose your acquisition that is closing soon. Or, you may prefer to buy first to eliminate the pressure of having to identify your like-kind replacement property within the 45 calendar day identification deadline in a regular Forward 1031 Exchange.
What ever your reason, the reverse 1031 exchange does allow you to acquire your like-kind replacement property before you sell your relinquished property. It can be a great strategic tool when needed and/or preferred.
Revenue Procedure 2000-37
Reverse 1031 exchanges have been used for years, but there was no official guidance from the Internal Revenue Service as to exactly how they should be structured or even if they would qualify until 2000.
The Internal Revenue Service issued Revenue Procedure 2000-37 on September 15, 2000, which provides us with just such guidance on how to properly structure reverse 1031 exchange transactions by using a parking arrangement in conjunction with a simultaneous 1031 Exchange.
Simultaneous 1031 Exchange
The actual 1031 Exchange portion of the reverse 1031 exchange transaction will be a simultaneous or concurrent 1031 exchange at the beginning or end of your reverse 1031 exchange. You will enter into a 1031 exchange agreement with Exeter 1031 Exchange Services, LLC as your Qualified Intermediary for the administration of your 1031 Exchange.
Parking Arrangement
You will enter into another agreement called the Qualified Exchange Accommodation Agreement ("QEAA") that will structure the parking arrangement in your reverse 1031 exchange. The QEAA is signed by you and Exeter Reverse 1031 Exchange Services, LLC as your Exchange Accommodation Titleholder ("EAT"). The Exchange Accommodation Titleholder ("EAT") is the entity that will acquire and hold or "park" title to either your like-kind replacement property or your relinquished property during your reverse 1031 exchange transaction.
We will begin putting all of this together in Post No. 5 of the series, so stay tuned.
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