What is a Reverse 1031 Exchange? by Kevin Sanz, CCIM, MSIRE

Posted on November 04, 2020

Commercial real estate investors have long relied on Section 1031 of the tax code to defer capital gains taxes on the sale of appreciated real property when they reinvest sales proceeds into the purchase of similar, like-kind property within a very specific timeframe. However, it is not uncommon for investors to identify and even acquire a new, replacement property before they sell an existing property. This is known as a reverse 1031 exchange. It is critical that investors work with experienced advisors and qualified intermediaries to ensure they meet all the criteria to qualify for tax deferral. For example, a taxpayer will need to identifying property to sell with 45 days of acquisition of the replacement property and closing on that sale within 180 days. During this period of time, the acquired property will need to be transferred to the QI to avoid tax exposure.

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