Benefits Of The Reverse 1031 Exchange

When a taxpayer needs to purchase their replacement property prior to the closing of their old relinquished property a "reverse 1031 exchange" is the best alternative to save a 1031 tax deferred exchange. An IRS ruling allows for a safe harbor for a reverse 1031 exchange providing that the following conditions are met:

• Taxpayer enters into a "Qualified Exchange Accommodation Agreement" with the qualified intermediary that states that the taxpayer intends to meet the requirements of Section 1031 and Revenue Procedure 2000-37. This agreement needs to be entered into within 5 days of when the qualified intermediary purchases the replacement "new" property.
  
• The party holding the "new" parked property must be a qualified intermediary or a limited liability company under the intermediary’s control.
  
• There must be proof of intent for the parked property to be part of the exchange.
  
• Within 45 days of the purchase of the parked property, the taxpayer must complete a 45-day identification form listing the parked property as one of the identifications.
  
• The parked property must be transferred to the taxpayer on or before the 180th day from the date of acquisition by the qualified intermediary.

• Advance funds to the qualified intermediary to acquire the parked property.
  
• Guarantee the debt used to acquire the parked property.
  
• Manage the replacement property during the parking period.
  
• Supervise construction and improvements on the parked property.