A 1031 exchange is not as simple as it sounds – sell one property, buy another like kind one. Understanding the changing market dynamics, the Internal Revenue Service has accepted various kinds of exchanges that allow for greater flexibility to investors.
A reverse exchange is one such type. It involves acquiring a like kind replacement property before you dispose of your relinquished property. One of the main reasons why reverse exchanges are gaining popularity is the strict timeline. The real estate market is quite fast paced and you may sometimes lose the opportunity to acquire a desirable replacement property if you sell first. However, there are a few requirements to this kind of exchange. You must:
- Enter a written Qualified Exchange Accommodation Arrangement (QEAA), and
- Engage the services of an exchange accommodation titleholder (EAT).