1031 exchanges come in several different forms. There are real estate exchanges, personal property exchanges, build-to-suit exchanges, and more. In this article, we are going to offer a brief overview of the reverse 1031 exchange and how it can be used as a vehicle for tax deferral when selling real estate.
The Reverse Like-Kind Exchange
A reverse 1031 exchange is a like-kind exchange in which the taxpayer acquires their replacement property first, before selling their relinquished property. This is essentially the reverse of the standard order or operations. Reverse exchanges are often utilized in competitive real estate markets, where you might need to lock down a property before someone else does.
Reverse Exchange Guidelines
There are many guidelines that you have to be aware of when doing a reverse like-kind exchange. Here are a few of the most important rules:
- 180 Day Time Period. In any 1031 exchange you only have 180 days total to complete your exchange. If your exchange is not complete within this time period, it will fail.
- Like-Kind Requirement. All property involved in the exchange must be like-kind.
- Held For Requirement. You must also hold your property for business or investment purposes. You cannot 1031 exchange property held primarily for your own personal use.
- Value, Equity, Debt. Your replacement property has to be equal to or greater than your relinquished property in terms of value, equity, and debt.
Minnesota 1031 Exchange Professionals
At Commercial Partners Title, we work with investors and taxpayers across the country on all sorts of real estate transactions. We work directly with CPEC1031 (Commercial Partners Exchange Company) to facilitate 1031 exchanges when necessary. With decades of experience, we are recognized as experts in commercial transactions. If you are interested in learning more about the tax benefits of a 1031 exchange, contact us today!