Types of Reverse Exchanges
Internal Revenue Procedure 2000-37 provides safe harbors for your properties through two types of "parking" arrangements necessary to accomplish reverse 1031 exchanges. These parking arrangements are called "front leg reverse exchange" and "back leg reverse exchange". Each leg utilizes an Exchange Accommodation Titleholder (EAT) who receives and holds legal title to either the taxpayer's replacement property or relinquished property. This property is held by the EAT for 180 days or until the relinquished property is transferred to a buyer, whichever occurs first.
With both arrangements, you must:
- Enter into a Qualified Exchange Accommodation Agreement (QEAA) with the EAT.
- Provide the EAT with the down payment for the replacement property, or arrange for financing in favor of the EAT necessary for the acquisition of the replacement property.
- Market and make arrangements to dispose of the relinquished property within 180 days of the transfer of the replacement property. During the first 45 days, you must identify which relinquished properties you intend to transfer as part of this reverse exchange.
- Receive repayment of your loan to the EAT with the sale proceeds of the relinquished property.
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