The need for a reverse 1031 exchange arises when circumstances require that the replacement property be acquired before closing on the relinquished property. Often Exchangers may need to perform a reverse exchange in a “sellers market” where recently listed properties are quickly under contract with a buyer.
Revenue Procedure 2000-37 provides guidelines for the Exchanger to perform a “parking arrangement” exchange within 180 calendar days from the Exchange Accommodation Titleholder’s (EAT) purchase of the replacement property.
The EAT acquires title to the replacement property with funds the Exchanger causes to be loaned to the EAT. Within 180 days, the 1031 Exchanger sells the relinquished property through the “delayed exchange” format and the EAT transfers the replacement property to the Exchanger.
Positives of the “Replacement Property Parked”
Negatives of the “Replacement Property Parked”
The Exchanger conveys the relinquished property to the EAT and then the Exchanger acquires the replacement property under a “simultaneous exchange” format. During the 180 days, the EAT remains on title to the relinquished property until it is sold to a purchaser.
Positives of the “Relinquished Property Parked”
Negatives of the “Relinquished Property Parked”