In a standard exchange you sell, then buy. Real estate rarely cooperates with that order: the property you actually want often comes on the market before your existing property is under contract. A reverse exchange, structured under IRS Revenue Procedure 2000-37, solves the problem: an exchange accommodation titleholder acquires and “parks” the new property while you complete the sale of the old one.
EAT takes title
The new property is parked, held for your benefit
Your old property sells
Within the same 45/180-day clock, run in reverse
Exchange completes
The parked property transfers to you; deferral preserved
How a reverse exchange works
- 1
Set the structure before you buy
Because you cannot hold title to both properties at once and still qualify, the parking arrangement must be in place before you close on the replacement property. Call us as soon as a reverse looks likely. - 2
The replacement property is parked
An exchange accommodation titleholder (EAT) takes title to the new property and holds it for your benefit. - 3
The clock runs in reverse
You have 45 days to identify which property you will relinquish, and 180 days to close its sale: the same deadlines as a forward exchange. - 4
The exchange completes
When your old property sells, the parked property transfers to you and the deferral is preserved.
Forward vs. reverse, side by side
Forward exchange
The default
- Order
- Sell first, then buy
- Funding
- Sale proceeds fund the purchase
- Deadlines
- 45 days to identify, 180 to close the purchase
- Cost
- Standard intermediary fee
- Best when
- Your sale is under contract before you commit to a purchase
Reverse exchange
Rev. Proc. 2000-37
- Order
- Buy first, then sell
- Funding
- Cash or a loan arranged around the parking structure
- Deadlines
- 45 days to identify what you'll sell, 180 to close that sale
- Cost
- Higher: an extra entity holds title
- Best when
- The right property appears before your sale is ready
What to know going in
- It requires real financing planning. You are funding the new purchase before your sale proceeds exist, usually with cash or a loan arranged around the parking structure. We work with your lender so the paperwork holds up.
- The deadlines are just as strict. If the old property doesn’t sell within 180 days, the parked property can’t complete the exchange.
Why investors bring reverses to us
Reverse exchanges are a demanding structure that many intermediaries simply won’t take on. Because 1031 QualEx is a full-time, attorney-run intermediary (exchanges are our only business), reverses are a core part of our practice, not an exotic exception. If you’ve found the right property first, call before you sign anything and we’ll map the structure with you.