Reverse Exchange
Did you find a new property to buy before you can sell your current one? 1031X can help. We offer nationwide reverse 1031 exchange services to help real estate investors optimize their tax efficiency, buying power, and flexibility.
1031X will help you get the property you want, even when you are competing in a hot market and your sale isn’t ready yet.
How does a reverse 1031 exchange work?
A reverse 1031 exchange, as the name implies, places the standard 1031 exchange process in reverse. Rather than selling your current property and getting a replacement property, you work in the opposite direction. Purchase your replacement property today, then sell your other property when you can get a better price or find another buyer.
Why work with 1031X for reverse exchanges?
Most 1031 companies shy away from reverse exchanges. At 1031X, we embrace these complex solutions. Partner with one of our Advanced Exchange Specialists to find the best structure today. Our services include:
Help navigating state & local hurdles
1031X conducts 1031 exchanges in all 50 states. We'll help you navigate state and local regulations.
Assistance in obtaining financing
Our 30 years of experience in the 1031 exchange industry have helped us establish lending relationships around the United States. We can connect you with partners who can assist you with reverse 1031 exchange financing.
Simple conversion between exchanges
Our system makes converting between exchange types fast when you need to stop or change the type of 1031 exchange.
One-on-one service
When you work with 1031X, you'll have direct care from a dedicated 1031 exchange specialist. Our officers ensure clients receive individualized attention for a smooth exchange from start to finish.
Creative solutions
No two reverse exchanges are the same. We'll use our expertise to make sure you've got the right structure for a successful 1031 exchange.
The rules of a reverse 1031 exchange
All the rules from a standard 1031 exchange still apply. The reverse exchange time limit is still 180 days, for example. The identification period is still 45 days — except that you'll identify properties to sell, rather than to buy.
You'll also still need your replacement property to be of equal or greater value to your (soon-to-be) relinquished property in order to defer all taxes. However, you'll need to work very closely with your qualified intermediary (QI) to navigate the reverse exchange rules around financing and taking title to the replacement property.
Where does 1031X come in?
As a qualified intermediary, 1031X helps facilitate your 1031 exchange from beginning to end. (The IRS requires this.) In a normal “forward” exchange, your QI creates the necessary legal distance between you and your sale proceeds, thereby allowing you to avoid recognizing taxable income. The QI's job is the same in a reverse exchange, but with a twist.
The twist: The IRS won't allow you to hold title to your 1031 replacement property before you sell your relinquished property — i.e., you can't just buy the property outright. This is where 1031X jumps in. We create a new LLC, known as an Exchange Accommodation Titleholder (EAT), to act as the holding company for your replacement property.
In a nutshell:
- We enter an agreement with you for the reverse 1031 exchange
- You go under contract to buy the replacement property
- You assign the purchaser’s rights to the new LLC, or EAT
From there, you (or an outside lender) loans the funds to the EAT so that it may buy the property. This loan is secured against the property. Then, the EAT leases the property to you, ensuring that you have access during the EAT’s holding period. (The lease is almost always structured so that you do not make rental payments to the EAT)
When you sell your relinquished property, the sales proceeds go to a 1031 exchange escrow bank account. When you’re ready to complete the exchange, we draft an “Assignment of Membership Interest” that gives you full ownership of the property under the LLC. Your recent sales proceeds are then used to buy the property from the EAT, pay down the loan, and complete the exchange.
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