What you need to know about Reverse Exchanges...
In a reverse exchange, the EAT takes title to the replacement property and holds it for up to 180 days until a purchaser is found for the relinquished property, and then the EAT transfers the replacement property to the Purchaser.
In the structure chart below, the Purchaser is conducting a 1031 reverse exchange:
• Step 1: The Purchaser and Seller enter into a purchase and sale agreement (PSA) for the replacement property. The PSA is assigned to the EAT so the EAT can hold title to the replacement property until a purchaser for the relinquished property is found.
• Step 2: The Seller transfers the replacement property to the EAT.
• Step 3: Within five days of the transfer of the replacement property, the Purchaser and the EAT must enter into a Qualified Exchange Accommodation Agreement (QEAA), that states the following:
• the EAT is the beneficial owner of the replacement property on behalf of the Purchaser to complete a 1031 exchange under Rev. Proc. 2000-37;
• the parties will report the acquisition, holding, and sale of the replacement property as required under Rev. Proc. 2000-37; and
• the Purchaser and the EAT will treat the EAT as the beneficial owner of the property for federal income tax purposes.
• Step 4: Within 180 days of the transfer of the replacement property to the EAT, the Purchaser transfers the relinquished property to the Third-Party Purchaser.
• Step 5: The EAT transfers the replacement property to the Purchaser.
© 2018 Thomson Reuters. No claim to original U.S. Government Works.
The contents herein are intended to convey general information only and not to provide legal or tax advice. You are advised to contact your legal or tax advisor for specific advice on 1031 exchanges. No action should be taken in reliance on the information contained herein and we disclaim all liability in respect to actions taken or not taken based on any or all of the contents herein to the fullest extent permitted by law.