In a back leg reverse 1031 exchange, how must title to the replacement property be held? This is a common question when it comes to reverse exchanges.
Exchange Accommodation Title Holder
A back leg reverse exchange is where the qualified intermediary forms an LLC called an exchange accommodation title holder (E.A.T.). That LLC purchases the replacement property rather than having the taxpayer receive it.
The reason that we’re parking the replacement property with the exchange accommodation title holder is we want to put it on ice – hold it in a parking arrangement until the relinquished property can be disposed of.
The Purchase Agreement
But before the closing of the replacement property the exchanger typically enters into that purchase agreement. It may say “Joe Blo and/or his assigns.”
We want Joe to remain the purchaser right up until the moment before the closing is completed so that Joe can enter into amendments, and work through the due diligence period and inspections. Then, if and only if Joe decides to purchase the replacement property as part of a reverse exchange, Joe will then at the last moment assign that purchase agreement to the exchange accommodation title holder, who will take title to the replacement property and hold it for up to 100 days while Joe goes about trying to dispose of and liquidate the old relinquished property.