1031 Reverse Tax Free Exchange Real Estate

1031 Reverse Tax Free Exchange Real Estate

reverse exchange,tax free reverse exchange


1031 Reverse Tax Free Exchange Real Estate. The reverse exchange is a “parking arrangement” that allows an Exchanger to purchase a replacement property and then later sell the relinquished property within 180 days. Several reverse exchange strategies are available:

• “Parking the Replacement Property”: The EAT acquires title to the replacement property. Within 180 days, the Exchanger sells the relinquished property and the EAT transfers the replacement property to the Exchanger.

• “Parking the Relinquished Property”: The EAT acquires the relinquished property and completes a simultaneous exchange for the replacement property. The EAT remains on title to the relinquished property until it is sold to a purchaser within 180 days.

• “Reverse/Improvement Exchange”: The EAT acquires the replacement property and makes improvements to this property. The improved replacement property is later exchanged for the relinquished property within 180 days to complete the exchange.


The improvement exchange is a “parking arrangement” that allows an Exchanger, through the use of an EAT, to make improvements on a replacement property within the 180-day exchange period. The improvement exchange can be advantageous in the following situations:

• Eliminating a taxable situation by adding the cost of capital improvements to the replacement property’s value.

• Building a new property from the ground up to maximize investment opportunities.

Parking Arrangements

Revenue Procedure 2000-37, enacted on September 15, 2000, creates a “safe harbor” for reverse and improvement exchanges whereby the Exchange Accommodation Titleholder (EAT) enters into a “parking arrangement” and acquires title to either the relinquished or replacement property. Strategically applied, these types of exchanges empower the investor with the ability to enhance their investment alternatives.


Immediately acquire a desirable replacement property prior to selling the relinquished property.


Build from the ground up or improve an existing property, resulting in an investment that meets your exact needs.


Revenue Procedure 2000-37 outlines the following parameters to create a “safe harbor” for transactions where the EAT holds title to either the relinquished or replacement properties:

  • The title to either the relinquished or the replacement property must be “parked” with the EAT.
  • The EAT must hold legal title, referred to as the “Qualified Indicia of Ownership.”
  • The Exchanger and the EAT must enter into a written agreement known as the “Qualified Exchange Accommodation Arrangement” (QEAA).
  • The Exchanger must have a “bona fide intent” that the “parked” property will either be the relinquished or replacement property in an exchange.
  • The EAT cannot be the Exchanger or a “disqualified person.”
  • The EAT must report the property on its income tax return.
  • The Exchanger must identify the relinquished property within 45 calendar days.
  • The Exchanger must complete the exchange within 180 calendar days from the date the property
    is transferred to the EAT.


Revenue Procedure 2000-37 provides for the following permissible agreements, regardless of whether they contain terms that may typically destroy an arms-length relationship between the EAT and the Exchanger.


  • The EAT may act as both the Qualified Intermediary and the EAT, provided that they satisfy the Qualified Intermediary safe harbor provisions in Section 1.1031(k)-1(g)(4).
  • The Exchanger may guarantee all or part of the obligations of the EAT including debt and incurred expenses.
  • The Exchanger may loan or advance funds or guarantee a loan or advance to the EAT.
  • The EAT may lease the property to the Exchanger or a disqualified person.
  • The EAT may enter into a management agreement with the Exchanger.
  • The Exchanger may act as contractor and/or supervisor with respect to the “parked” property.
  •  The EAT and the Exchanger may enter into agreements using puts and calls at fixed or formula prices for subsequent dispositions.
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