In this episode, Tracey Wilson of IPX1031.com compares the 1031 Exchange from the previous episode and explains the 1031 Reverse Exchange. In the previous episode Tracey Wilson went into details about the 1031 Exchange laws, how they work, details you need to know, including the six rules.
Here is the nutshell of this 8-minute episode. You'll want to listen or call Tracey to get a more comprehensive explanation:
In a Forward Exchange, you would sell the old property. You have 45 days to identify the new, buy new, then 180 days to complete the purchase of the new property.
In a Reverse Exchange, there are two types:
1. replacement property parked first
2. relinquished property parked first.
Here's the scenario for the first type:
Buy new first, then there are 45 days to identify the old. (Third closing) the flip (QI to client), 180 days (safe harbor) or longer (non-safe harbor).
To ensure you don't have two properties to try to exchange, since that isn't permitted in this situation, your QI would buy the property. This is an EAT (Exchange Accommodation Title Holder). This is called Parking Title in the tax code.
This starts the timeline:
45 days to identify what they want to sell (easy)
Flip - the third closing transfers property from QI to client - get it done in 180 days - no capital gains tax.
Where does the QI get the money to buy the property? It's from the client. The client must secure the funds.
1. client has enough cash or liquidity to secure a promissory note
2. lender option - they do not want to loan for a reverse exchanges, BUT a company such as The Rueth Team Fairway Mortgage, will do this.