The Safe Harbor Reverse Exchange

By
Services for Real Estate Pros with Exeter 1031 Exchange Services, LLC President & CEO

I addressed the issue of whether a true reverse exchange would qualify for tax-deferred exchange treatment in my blog post from yesterday.  I discussed the fact that a true reverse exchange does not exist, but that a reverse exchange can be structured. 

Reverse Exchange Pursuant to Revenue Procedure 2000-37

The IRS issued Revenue Procedure 2000-37 that allows a real estate investor to structure a parking arrangement whereby an Exchange Accommodation Titleholder can acquire and hold or "park" title to either the the real estate investor's relinquished property or replacement property in order to buy enough time to sell the existing relinquished property and structure a concurrent 1031 exchange and still defer the payment of their depreciation recapture and capital gain taxes.

Safe Harbor Provisions

Structuring a reverse exchange using Rev. Proc. 2000-37 is called a Safe Harbor Reverse Exchange because you are taking advantage of the safe harbor provisions provided by the IRS in the Revenue Procedure 2000-37.  The IRS will not challenge your reverse exchange as long as you have followed the safe harbor provisions.  It is for these reasons that most real estate investors comply with Rev. Proc. 2000-37 so that they can take advantage of the safe harbor provisions and not have to worry as to whether their reverse exchange would be challenged by the IRS. 

Outside the Safe Harbor Provisions

You can structure a reverse exchange that is outside of the safe harbor guidelines or provisions provided by Rev. Proc. 2000-37.  Rev. Proc. 2000-37 does not disqualify those reverse exchanges that are not structured within its safe harbor provisions, but the real estate investor can not take advantage of the safe harbor provisions either, so they are assuming some degree of risk should their reverse exchange come under audit. 

Stay tuned for more thoughts regarding reverse exchanges.

Website for Additional Information

You can visit Exeter Reverse 1031 Exchange Services, LLC's website for more detailed and in depth information on reverse exchanges. 

Call Exeter 24/7

You can also reach a senior executive of Exeter Reverse 1031 Exchange Services, LLC anytime you would like to speak to them - 24 hours a day, 7 days a week. 

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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Good information to have as more investors begin to jump in.  Thanks,

May 31, 2008 07:04 PM #1
Rainer
136,305
Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Hi Christine,

Thank you so much for dropping by and posting a comment.  You are so right.  The more investors that jump in the more that will need to look at this strategy. 

May 31, 2008 07:57 PM #2
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Bill Exeter

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