A reverse exchange allows you to “lock-in” your new property while you wait for your old property to sell.  This is done  by having All Real Property, Inc. (as sister company to Spectrum Exchange Corp.) hold title to one of the exchange properties on your behalf.

“The new property is ‘locked in’…"

Although the term “Reverse” implies you can literally acquire the new property before you sell, it is impossible to exchange two properties you already own!  You also cannot have a friend or agent buy the property for you without jeopardizing the intended exchange by raising “related party” and “agency” issues with the IRS!  All Real Property, Inc. addresses these concerns by acquiring the new property as your Qualified Intermediary not as your agent and entering into an exchange agreement containing an obligation to exchange the new property for your old property when a buyer is located.  

Note:  More details apply.  Contact Claire Westberg directly for further information.)

What Are the Benefits?

• Buy low, sell high!  You can buy during a down market and sell during a more favorable market.
• Better the competition in a hot market:  You can negotiate the best possible deal because you do not have a contingency on your sale!
• Reduce taxes -  In this changing tax climate, you may want to have more control over when you choose to sell your investment property.

What Are the Risks?

Very few - The IRS effectively "blessed" reverse exchanges when they issued Revenue Procedure 2000-37.  The most important changes are the time deadlines that apply to all reverse exchanges entered into on, or after, September 15, 2000.

“Will he lose his ‘dream’ property?”

How Is it Structured?

If the Replacement Property is parked:

1. The Exchangor and the Qualified Intermediary must enter into a qualified exchange accommodation agreement within 5 days after Qualified Intermediary acquires title to the Replacement Property.  (Practically speaking, we would not acquire title without having first entered into this agreement).
2. The Exchangor must identify the property he intends to relinquish within 45 days after the Replacement Property is acquired by Qualified Intermediary.
3. The Qualified Intermediary must transfer the Relinquished Property to the third-party buyer (via an assignment of the purchase contract) within 180 days after Qualified Intermediary's acquisition of the Replacement Property and transfer the Replacement Property to the Exchangor within 180 days after acquisition.  (Generally the Replacement Property is transferred to the Exchangor simultaneously with or immediately following the sale of the Relinquished Property to the third-party buyer.)

If the Relinquished Property is parked:

1. The Qualified Intermediary acquires title to the Relinquished Property from the Exchangor just prior to the Exchangor acquiring title to the Replacement Property.

2. The Qualified Intermediary acquires title to the Relinquished Property from the Exchangor just prior to the Exchangor acquiring title to the Replacement Property.

3. The Qualified Intermediary must transfer the Relinquished Property to a third-party buyer within 180 days after Qualified Intermediary acquires title to the Relinquished Property.

Within the terms of Rev. Proc. 2000-37, both the Qualified Intermediary and the Exchangor must report the exchange on their federal tax returns for the year in which the exchange occurred.  

Note:  you could cause this exchange to fail if you inadvertently claim the tax benefits of an owner while not in ownership.

“….offset the financial pain…”

Is a §1031 Reverse Exchange for you?

• Will you lose a great opportunity to purchase your “dream” property by waiting for your existing property to sell?
• Do you have sufficient capital or borrowing power to purchase without selling first?
• Does your tax advisor agree this type of exchange is a viable alternative to paying capital gains taxes on your sale?
• Does the possibility of deferring your capital gain by structuring an exchange in this manner offset the financial pain of definitely paying taxes if you don’t!

The taxpayer is advised to seek the advice of a CPA and/or tax consultant regarding the identification period, exchange period and manner of identification.  Compliance with the rules and regulations contained in IRC 1031 is the sole responsibility of the taxpayer.