Q. I know how a 1031 Exchange works, but can you explain a “Reverse Exchange”?
A. This is a specialized transaction that allows an exchangor to acquire a replacement property prior to selling their property. A separate entity needs to be formed to take title to either the relinquished property or the replacement property and to “park the title” for up to 180 days. The exchanger also needs to identify the intended relinquished property within 45 days after a property is acquired. Since an exchanger is prohibited from owning both the old and new property at the same time, this procedure creates a framework for a “safe harbor” reverse exchange. As is the case with a 1031 deferred exchange, the reverse exchange is date specific, meaning strict dates and procedures need to be followed.
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