If you find a replacement asset you would like to acquire before you sell your current business-use or invesment asset, a Reverse 1031 Exchange can save you thousands of dollars in tax. A reverse exchange situation, typically, arises when the taxpayer needs to acquire the replacement property, or new asset, before disposing of the relinquished property, or new asset. Often times, owners of personal property assets face the prospect of losing the opportunity to acquire a desirable replacement property, when the seller of such property is unwilling or unable to wait while the taxpayer completes the disposition of the relinquished property. Other times, an owner is unable to sell the old asset until a replacement asset has been put into service.
Safe Harbor & Exchange Accommodation Titleholder
On September 15, 2000, the IRS issued a Revenue Procedure providing a "safe harbor" for a variety of property "parking" arrangements. For this type of exchange, legal title to the asset must be held by a third party, referred to as an Exchange Accommodation Titleholder (EAT), for a period of time not to exceed six months. Essentially, the EAT acquires the property from the seller on behalf of the buyer and holds it in abeyance until the taxpayer is able to sell the relinquished property. At that time, the taxpayer exchanges the relinquished property for the replacement property being held by the EAT. In a reverse exchange, the taxpayer effectively is able to acquire the replacement property prior to the sale of the relinquished property.
Specialists in Reverse Exchanges
Our personal property team specializes in reverse exchanges of personal property assets. When Accruit acts as the Exchange Accommodation Titleholder, a limited liability company is utilized for purposes of holding title.