A 1031 exchange, commonly referred to as a delayed exchange, is a tax-deferred strategy used in real estate investment. It allows landowners to sell a property and then reinvest the proceeds into another “like-kind” property without recognizing capital gains taxes at the time of the exchange.  The transfer of properties between the qualified intermediary (QI) and the taxpayer constitutes an exchange, not a simple sale and purchase. The Reverse/Parking Exchange is a type of Safe Harbor Exchange.

A reverse exchange, also referred to as a parking exchange, is the solution when a taxpayer needs or wants to secure new real estate before selling their current property.  A base rule of 1031 exchanges is that the taxpayer is unable to own both the relinquished and replacement property simultaneously. Therefore, a special purpose entity (SPE) is prepared. The parking entity, referred to as an Exchange Accommodation Titleholder (EAT), and a Qualified Exchange Accommodation Agreement (QEAA) will be created and registered through our available services. The parking entity will then essentially step into the exchanger’s shoes to acquire the replacement real estate and hold temporary title of the property until the exchanger’s sale closes.

Once this is completed, the deed or membership interest in the parking entity will be transferred to the taxpayer to satisfy the replacement portion of the forward exchange. Like a forward exchange, this is completed within the 180-day window, which begins on the day the replacement property is obtained. These are most often utilized due to competitive real estate markets and timing. However, other reasons for a reverse include ongoing business and financial considerations. Reverse exchanges are more complex, and your QI should be involved in all steps and planning to ensure it is completed in accordance with IRC § 1031.

But, what if…
If the taxpayer has multiple moving pieces, for instance, where the taxpayer has two sales and one purchase but one sale occurs, then a purchase and lastly, another sale. What is the solution? Don’t stress out! Just contact us today to discuss those particulars and assist  crafting potential solutions.

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