What is a Reverse 1031 Exchange?
A reverse 1031 exchange lets you buy your replacement property first and sell the property you are giving up afterward. Because you cannot hold title to both at once under IRS rules, an Exchange Accommodation Titleholder parks one of the properties while you complete the sale. It is the go-to move when you find the right replacement before your current property has sold.
The deadlines are the same tight ones as a standard exchange, measured from the day the parked property is acquired: 45 days to formally identify the property you will sell, and 180 days to close the whole transaction. Miss either window and the tax deferral is gone.
Reverse exchanges are more complex and more expensive than a forward exchange, so they are worth it mainly when timing forces your hand in a competitive market. Working with an experienced qualified intermediary from the start keeps the parking arrangement, the paperwork, and the deadlines on track.
Key points
- Buy the replacement property first, sell the relinquished property second.
- An Exchange Accommodation Titleholder (EAT) holds title to one property in the meantime.
- 45-day identification and 180-day closing deadlines still apply, from the parking date.
- Best when you find the right replacement before your current property sells.
Learn more
See our full breakdown of the reverse 1031 exchange process, compare it with a delayed exchange, or start an exchange with our team.
Full transcript
A reverse 1031 exchange is exactly what it sounds like — you purchase your replacement property prior to selling your relinquished property. With a reverse exchange, the qualified intermediary forms a new LLC to take title to the replacement property, and upon the sale of the relinquished property, the membership interests in that LLC are assigned over to the exchanger, and the reverse exchange is then complete.
The timelines for doing a reverse exchange are still the same as with a regular delayed exchange: 180 days to complete the transaction.