Overview of Reverse 1031 Exchanges

The real estate market has changed considerably over the last six to ten months. There is significanly more real property inventory on the market today compared to the same time last year. In fact, in some geographic areas there is about six to eight months worth of inventory listed on the MLS.

You may also be experiencing what other investors have recently. You may have listed your relinquished propperty for sale while putting your like-kind replacement property under contract at the same time fully expecting both your sale and acquisition to close simultaneously.

The unexpected then happens. The sale either does not sell or falls out of escrow and you are faced with a difficult decision. You must either complete your acquisition or lose it. What do you do?

There is a solution that will still allow you to qualify for tax-deferred exchange treatment. It's called a reverse 1031 exchange.

The reverse tax-deferred exchange allows you to acquire your lke-kind replacement property first and then sell your relinquished property later. Although it is significantly more expensive and complicated, it can be the difference between a taxable or tax-deferred transaction.

It also eliminates the risk of the extremely short 45 calendar day identification rule, so I always prefer the reverse 1031 exchange over the regular forward tax-deferred exchange.

You may wish to learn more about reverse 1031 exchanges by clicking here.