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WHAT IS A REVERSE 1031 TAX EXCHANGE?
A Reverse 1031 Exchange is when the exchanger
closes on their new replacement property before they have sold
their old property. The IRS has adopted regulations
specifically to allow Reverse 1031 Tax Exchanges. The Reverse
1031 Tax Exchange receives basically the same tax benefits as a
regular 1031 Tax Exchange. To make the Reverse 1031 Tax Exchange
work, someone other that yourself (usually your Qualified
Intermediary) must take title to one of the properties until you
are ready to convey your old property to a buyer.
WHAT
IS A SAFE HARBOR REVERSE 1031 TAX EXCHANGE?
A Safe Harbor Reverse 1031Tax Exchange
involves the accommodator temporarily holding the new property
for the exchanger until the old property is sold. Within 45 days
of this arrangement, the exchanger must identify this new
property as being the replacement 1031 Tax Exchange property.
The exchanger also has 180 days to complete the 1031 Tax
Exchange transaction in order for it to be regarded as safe
harbor. This safe harbor method of structuring a Reverse 1031
Tax Exchange is outlined in the 2000 IRS guidelines. This is
viewed as the safest way to structure a Reverse 1031 Tax
Exchange because it is clear that the exchanger does not receive
any property prior to completing the transaction.
WHAT IS A TRADITIONAL REVERSE 1031 TAX EXCHANGE?
A traditional Reverse 1031 Tax Exchange is
structured the same way as a safe harbor
Reverse 1031 Tax
Exchange except that the exchanger cannot meet the 180 day time
requirement. This is usually due to the exchanger having
difficulty selling their old property. When this is the case,
make sure that your tax advisor takes the proper precautionary
measures to document and insure the integrity of your Reverse
1031 Tax Exchange.
WHAT
IS A CONSTRUCTION REVERSE 1031 TAX EXCHANGE?
A Construction Reverse 1031 Tax Exchange
allows a taxpayer to acquire a piece of raw land for future
development before selling their old property in a 1031 Tax
Exchange. Construction Reverse 1031 Tax Exchanges are structured
in the same way as traditional and Safe Harbor Reverse 1031 Tax
Exchanges. In a Construction Reverse 1031 Tax Exchange the
accommodator temporarily holds the land for the exchanger until
the old property is sold. Once the old property is disposed of
the exchanger can begin to build on the new land.
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