Reverse Exchange
A reverse exchange is a 1031 structure in which the replacement property is acquired before the relinquished property is sold, using an Exchange Accommodation Titleholder to park title in the meantime.
What it means
Most 1031 exchanges are forward: sell first, buy second. When the replacement becomes available before the downleg closes, a reverse exchange lets the taxpayer lock it in anyway. An Exchange Accommodation Titleholder (EAT), often a special-purpose LLC formed by the QI, takes title to the replacement (or, less commonly, the relinquished property) and holds it until the sale closes. At that point, the EAT transfers the replacement to the taxpayer.
Reverse exchanges are governed by IRS Rev. Proc. 2000-37, which provides a safe harbor if the EAT holds title no more than 180 days. They are more expensive than forward exchanges (additional QI fees, EAT financing costs, legal work) but sometimes necessary to secure a competitive replacement.
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