Types of Exchanges
Simultaneous Exchange with Intermediary. An Intermediary like Easy 1031 Exchange of CA (that's us!) usually facilitates in the transaction of most exchanges today. In this situation, the title of the relinquished property is transferred directly to the Buyer. However, the Buyer pays cash to the Intermediary. It is the Intermediary who pays cash to the Seller of the replacement property being bought by the Taxpayer. (Seller transfers title directly to the Taxpayer). You as the Taxpayer thus avoid receiving any cash during the transaction, which would immediately be taxable. The exchange should be properly documented in accordance with the Internal Revenue Service (IRS) regulations.
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Delayed Exchange is the most common type of exchange. There is a time gap between the transfer of the relinquished property and the acquisition property. At the time when the relinquished property is transferred to the Buyer, the Taxpayer often does not yet know what property he or she wants to acquire. Two legs of the exchange take place at different times. You, as the Taxpayer, have 45 days to identify the property you want as replacement property. However, the transfer of the property or properties identified must still close within 180 days of the transfer of the relinquished property.
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Reverse Exchange occurs when the replacement property is acquired prior to transferring of the relinquished property. This becomes a reverse exchange when you as the Taxpayer found your replacement property and closed prior to the time that the relinquished property is ready to close.
The transactions are sometimes called "parking arrangements" and the IRS have offered a safe harbor for reverse exchanges, as outlined in Rev. Proc. 2000-37.
1. Relinquished Property Parked occurs when you acquire the replacement property and conveys the relinquished property to the Exchange Accommodation Titleholder (EAT), using a Qualified Intermediary.
2. Replacement Property Parked is the second structure of Reverse Exchange where the EAT acquires the replacement property and construct improvements on the property if needed. When your relinquished property is ready to close, then you will exchange the relinquished property for the replacement property through an exchange intermediary.
There are conditions for doing the Reverse Exchange:
1. The EAT cannot be you as the Taxpayer, or a person related to the Taxpayer, (including an entity in which the Taxpayer owns 10% or more), a Taxpayer's Attorney, a CPA, a real estate agent or an employee.
2. EAT must hold title to the property at all times from the time the property was purchased by the EAT until the property is transferred.
3. You and the EAT must enter into a written agreement.
4. EAT must be treated as the beneficial owner of the property for all federal income tax purposes.
5. EAT may lease the parked property to you or you may manage it.
6. You have 45 days after the date after the EAT's acquisition of the replacement property to identify which relinquished property will be exchanged. .
7. You must identify up to three (3) relinquished properties or any number so long their total value does not exceed 200% of the value of the parked replacement property.
8. Relinquished property must be sold to an unrelated third party no later than 180 days after the reverse exchange begins.
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Personal Property Exchange is an exchange not limited to real property. Personal property can also be exchanged for other personal property of like-kind or like-class.
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Open a Personal / Business Exchange