A forward exchange is used when the client sells their Relinquished Property first, then acquires the Replacement Property. Transaction costs of a forward exchange are nominal, and the documentation is relatively simple. Yet each Forward Exchange has issues an exchange professional can identify and solve. Please click here to learn more about forward exchanges.
A reverse exchange is used when the client locates suitable Replacement Property prior to the sale of the Relinquished Property. The IRS established a safe harbor for reverse exchanges with Revenue Procedure 2000-37 , 2000-2 C.B. 308. There are two general types of safe harbor reverse exchanges, depending on the property parked: "Exchange First" (in which the accommodator acquires the Relinquished Property), and "Exchange Last" (in which the accommodator acquires the Replacement Property). Transaction fees for a reverse exchange are higher than a forward exchange. However, a Reverse Exchange helps solve a difficult exchange issue - timing.
This is a special type of reverse exchange in which an accommodator acquires a parcel of undeveloped land, obtains construction financing, and builds improvements. The accommodator then transfers the improved property as Replacement Property to complete an exchange. This structure helps solve another difficult issue - value. Please click here to learn more about Improvement Exchanges.
Section 1031 has applications well beyond real estate. In fact, tax may be deferred on the sale of any real or personal property held for investment. To learn more about exchanges of personal property, please click the link below.
A challenge in any exchange is finding suitable replacement property within the short time period allowed by the Code and Regulations.
We have many replacement property strategies involving non-obvious sources of replacement property such as related party property, partnership interests and development of land holdings.
We also have pre-packaged replacement property solutions such as NNN leased properties, tenant-in-common (TIC) interests and oil & gas investments. Please contact us at 508.830.1188 if you have replacement property needs.
To learn more about Compass Exchange Advisors: