Reverse 1031 Exchange

A reverse exchange happens when an investor buys the replacement property before selling the relinquished property. It’s important to note that owning both properties at the same time is not allowed. The IRS has guidelines for setting up a reverse exchange, providing a safe harbor under Rev. Proc. 2000-37.

In a reverse exchange, an Exchange Accommodation Titleholder (EAT) is used. The EAT, usually set up as a single-member LLC, temporarily holds the target property (the parked property). To complete the reverse exchange, the EAT will hold the title to either the relinquished property or the replacement property under a “Qualified Exchange Accommodation Arrangement” (QEAA).