Reverse 1031 Exchange

Reverse 1031 Exchange

1031 exchange consists of various types of exchanges. The five types of 1031 exchanges are delayed exchange, simultaneous exchange, improvement exchange, reverse exchange and personal property exchange.

A reverse exchange is among one of the most commonly used 1031 exchanges. It means what exactly the name suggests. This is the basic 1031 exchange happening in the reverse cycle. In order to understand this first, take a look at how a normal exchange takes place.

Your property will be sold and the profit which is gained through the sale will be given to QI (Qualified Intermediary). A like-kind property should be found within the next 45 days period, then a duty letter should be sent to the QI. The next step is to negotiate with the seller of the like-kind property that has been chosen by you and agree on a sale price. Once the sale price has been agreed upon by both parties your intermediary will wire the amount which is the capital gain from the sale of your previous property to the title holder or Title Company of the property which is to be purchased. The last step is to fill out IRS form 8824. This is how a usual 1031 exchange works.

Now picture this happening in Reverse. In other words, the new property being purchased before the sale of the property which is owned by you. This usually happens when you find your perfect property that you wish to buy but the seller has other potential buyers and there is a high chance in which he might sell the property to someone else. And there is not enough time for the seller to wait for you to buy the property with the profit made from the sale of your original property or in other words using the capital gains from the sale of your property, as it is still in escrow.

The logic behind this is that there is no valid reason for the seller to wait until you produce the amount required to purchase his property when there are others lined up with the amount ready with them. This doesn’t mean you have to lose hope and look for other properties after the sale on your property is made. Therefore 1031 exchange has a reverse exchange which has been a blessing to anyone going through similar situation.

Reverse exchange lets you purchase the replacement property before the property you are trying to sell has been sold. Reverse 1031 Exchange is perfect for a real estate market in which the inventory is available, but the market is hot and happening. Keep in mind that 1031 reverse exchange will be extremely difficult to carry out without assistance from a QI or other professional. And by difficult it means extremely challenging and time-consuming in every possible way compared to other 1031 exchanges. Whereas with an intermediary by your side, you need not to worry about the same hassle.

Let’s look at Reverse 1031 Exchange 1031 elaborately. Unfailingly arrange funding from other sources then wait for the profit arising out of the property that you are trying to sell. These options may include arranging advance funds through a third party. Now it is necessary to enter into a written agreement which is commonly known as a qualified exchange accommodate agreement (QEAA) with your exchange accommodation title (EAT) holder. This agreement will come in handy as it contains the different provisions depending on the types of Financing you are trying to arrange for yourself and it also states how exactly your exchange accommodation titleholder intend to hold the property.

Now your EAT has to acquire title to the replacement property followed by you formally identifying the relinquished property through either QEAA or in a separate notice. This is followed by your EAT releasing your parked property to you providing you haven’t exceeded the parking period.

Identify a buyer and you may sell off your relinquished property to him but be sure to enter into a new agreement with a qualified intermediary who will require you to convey the relinquished property to your buyer through the means of a deed. Finally your exchange accommodation titleholder transfers the deed of the parked property directly to you, once this is done and overseen by your qualified intermediary this means that Reverse 1031 Exchange is successfully done.

Engage our services for a profitable 1031 Exchange and defer Taxes

1031 Exchange enables your money to churn the maximum profit for you. However, the exchange process is extremely complex in nature, and it would be wise to seek guidance from expert professionals. We have extensive experience in handling highly profitable exchanges for our varied client base.

For consultation and assistance regarding 1031 exchange call 888-993-2835 or email us at info@1031Xchange.com

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”