Reverse 1031 exchanges are one of the most common types of 1031 exchanges and can be particularly beneficial in certain situations. Here, we will provide some additional information on reverse exchanges – how they work and why they’re beneficial.
How Reverse Exchanges Work
A reverse 1031 exchange accomplishes the same end goal of a forward 1031 exchange, but does so in “reverse.” While in a forward exchange, the taxpayer sells their relinquished property first and then redeploys their net proceeds into a replacement property, a reverse exchange works in this order:
- The taxpayer acquires their replacement property first.
- The taxpayer identifies that property in writing.
- The taxpayer sells their replacement property and moves their net proceeds into the replacement property.
These are the basic steps of a reverse exchange. As with all types of exchanges, you still need to abide by the various 1031 exchange guidelines with a reverse exchange. Make sure you’re meeting the 1031 exchange deadlines, that your property qualifies, and more. A qualified intermediary can help you navigate these guidelines.
What’s the Benefit of a Reverse Exchange?
Reverse exchanges are beneficial in a number of situations. They can be particularly useful in a hot seller’s market when property is going fast and you want to snatch up a perfect replacement property before it’s gone.
Commercial Partners Exchange Company
CPEC1031, LLC is here to help you with all of your 1031 exchange questions. Our qualified intermediaries have over twenty years of experience facilitating exchanges of real estate under section 1031. We put that experience to work for each of our clients as we guide them through the 1031 exchange process. Reach out to our team of professionals for help with your next 1031 exchange. You can find us at our primary office located in downtown Minneapolis, or at one of our satellite offices around the United States.