While commonly overlooked, Reverse Exchanges were designed to solve some of the most common problems with 1031 Exchanges over the years. It's a transaction in which the property to be acquired (Replacement property) is owned by ("parked with'') an Exchange Intermediary (such as Strategic Property Exchanges, LLC) until the client is able to sell his relinquished property.
Common reasons to consider a Reverse Exchange include:
- The inability to identify replacement property within the 45 days
- The inability to acquire the replacement property within 180 days
- The Due Diligence time period may exceed the traditional Section 1031 time period. In the case of a Reverse Exchange the Seller has unlimited amount of time to locate the property to be purchased, since it will be acquired first.
- Loss of Negotiating Position with the Seller of the Replacement Property where the Seller of the Replacement Property learns that the purchase is part of a 1031 Exchange. The Seller may wait out the time period, knowing the Buyer has already identified his property.
- Title Issues. Many times unexpected title issues may delay the close on the sale of the relinquished property, causing the replacement property to be acquired first.
- Replacement Property must be acquired before the Relinquished Property can be sold.
- The Client may wish to maximize the amount of time to construct improvements;
- Many types of related party exchanges can be handled as a reverse exchange that otherwise could not be treated as a forward exchange.
- Current law favors reverse exchange when the client contemplates constructing improvements on property already owned by the client.
Depend on Strategic Property Exchanges LLC and our Board Certified Tax Attorneys to guide you through your Reverse Exchanges.