What if an Exchanger wants to buy a new (replacement) property before selling their old (relinquished) property? If the new property is purchased in the Exchanger’s name before the old property is sold, the transaction will not qualify for a 1031 Exchange. Revenue Procedure 2000-37 which provides the guidelines for Reverse Exchanges makes it clear that the Exchanger cannot own both properties at the same time.
The ownership process in a reverse exchange is described as a “parking arrangement” because ownership of either the replacement property or the relinquished property is “parked” with the QI who takes on an additional role, that of an Exchange Accommodation Titleholder or “EAT”.
Parking the Replacement Property: The EAT acquires the replacement property with funds provided by the Exchanger. Within 180 days the Exchanger sells their relinquished property through a “delayed exchange” format and the EAT then transfers ownership in the replacement property to the Exchanger.
Parking the Relinquished Property: The Exchanger conveys the intended relinquished property to the EAT and then the Exchanger acquires the replacement property under a “simultaneous exchange” format. EAT remains in title to the relinquished property during the 180 day exchange period until such time as it is sold to a purchaser. Feel free to ask any Qs