When the exchange guidelines were published
in April of 1991, there were no safe harbor guidelines for reverse exchanges.
The IRS has released a "revenue procedure" effective September
15, 2000 to provide a safe harbor for the reverse exchange. A reverse exchange
occurs when the taxpayer (exchanger) arranges to have the replacement property
acquired before they are able to sell their relinquished property. Under
the new procedure, the taxpayer may enter into a written agreement (called
a Qualified Exchange Accommodation Agreement) whereby the Qualified Intermediary
takes title to the Replacement Property. The Qualified Intermediary can
hold title up to 180 days while the taxpayer identifies and then sells the
Relinquished Property. There are additional fees involved and careful planning
is required to successfully navigate through this new safe harbor. Other
techniques for structuring a reverse exchange are still possible and should
be explored before embarking on the newest procedures. With the reverse
exchange, the identification timelines and rules are the same as with the
delayed exchange, although there is a difference in the Identification Notice.
Instead of identifying the replacement property within 45 days, you will
need to identify the relinquished property(ies). This is the property you
intend to sell to generate the sales proceeds needed to acquire your replacement
property held by the Qualified Intermediary. The entire process must be
completed within 180 days to receive tax-deferred treatment.
If you need anymore information or have any specific questions about 1031 tax-deferred
exchanges, please contact us at 1031exchange@marthadon.com
or call us at (386)-478-9202 or toll-free 1-877-281-7432.
