Why Complete a Reverse Exchange?
- Taxpayer or their agent locates a worthwhile replacement property to purchase, however, the relinquished property is not yet sold. The taxpayer is unable to extend the closing of the replacement property but wishes to acquire the replacement property as soon as possible. With a reverse exchange, the taxpayer can acquire the replacement property first, securing the property, and transfer the relinquished property after.
- Taxpayer’s closing falls through on their relinquished property or the closing is delayed, and taxpayer is already under contract to purchase the replacement property. If the taxpayer is unable to extend the closing of the replacement property, they will need to utilize a reverse exchange to complete the replacement property closing first and close on the sale of the relinquished property after.
- In a “seller’s market” where properties remain on the market for a short period of time, the taxpayer can negotiate to buy a replacement property first, secure the property, then sell their relinquished property after. This eliminates the concern to meet identification deadlines and identify replacement property within the 45-day period.
- In a “buyer’s market” where properties remain on the market for a longer period, the taxpayer can take advantage of a valuable “buy opportunity” by closing on the replacement property first. The taxpayer can then utilize the full 180-day exchange period to complete the sale and closing of the relinquished property.
- Where a business is relocating from the relinquished property to the replacement property, a reverse exchange minimizes business disruption. This structure allows the business to acquire their new space and transfer all property/employees to that new space, before closing on the sale of their old space, effectively allowing the business access to both spaces at the same time.
The full article can be located here: REVERSE EXCHANGE
Legal 1031 Exchange Services, LLC does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of your exchange transaction. Property owners must consult their tax and/or legal advisors for this information. Our role is limited to serving as qualified intermediary to facilitate your exchange.
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