In a reverse exchange, the exchangor closes on their new replacement property before completing the sale of their old relinquished property. An investor can enter into a reverse exchange with almost every type of like-kind property, including:
A reverse exchange is very helpful when you have found the new replacement property that you want, before you have closed on the sale of your relinquished-property. This is a popular exchange method with investors selling pricy real-estate, art or business. It is the safest exchange out there to help investors offset the dreaded 45 day rule (identification period) per IRS requirement.
Reverse Exchange in Action
An example of a reverse 1031 exchange would be an art collector who comes across a painting that they simply cannot pass up – let’s say it’s a rare, long-lost Picasso. The art collector agrees to purchase the painting on the spot, and then decides they’d like to sell one of the paintings they already own – perhaps a Van Gough – to offset the cost of the new Picasso. Since these two investments are like-kind (they are both paintings), the art collector could defer taxes on capital gains through a reverse 1031 exchange in this scenario. Like a forward exchange, the art collector would still have to abide by the 180 day rule in order to qualify. In this case, the art collector would have up to 180 days sell the old relinquished property (the Van Gough painting) to a third-party purchaser.
A reverse exchange require careful planning in advance so we can help you structure and effect a successful exchange.
Call our office today to talk to one of our 1031 experts and see how you can defer the tax and retain the gain on your investment – 346.800.2882