1031 exchange:
Reverse 1031 Exchange
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Forward or Reverse 1031 Exchange?
New IRS regulations have surfaced regarding reverse exchanges (buying the replacement property then selling the relinquished property). These changes will make it less risky to do this type of transaction. They have also made this type of deal less flexible than in the past. There is less time to complete a reverse exchange now (180 days when it used to be a year or more previously). The qualified intermediary needs to hold title to the property (on the buy or sell side) and depreciate the property. This increases reporting requirements; therefore, the cost is higher. For most people it is best to avoid doing a reverse exchange whenever possible.
The following are some ways to negotiate a deal to be a regular exchange:
- Make the
Purchase contingent on the sale of the
relinquished property
(this may not be feasible in a robust market) - Close the purchase later. Motivate the seller by doing the following:
- Increasing the earnest money deposit on the propert
- Making some or all of the earnest money deposit nonrefundable
- Increasing the purchase price
These tactics can be used along with more aggressive marketing of the relinquished property. Such as:
- Lowering the listed price
- Agreeing to terms of an existing offer
- In summary, for most real estate transactions a regular exchange is still the best choice.