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Reverse Exchange – (Intermediary holds title; proceeds wired directly to Intermediary) Replacement property closes first before the Relinquished property; must be completed within the 180 days that the accommodator took title.
- Replacement (up-leg) closing occurs first.
- The Five-Day Rule – a Qualified Intermediary Accommodation Agreement must entered into between taxpayer & EAT within 5 business days after title to property is taken by the EAT in anticipation of a Reverse Exchange.
- EAT takes and holds title to replacement property before a taxpayer finds buyer for relinquished property.
- Useful for a taxpayer who needs to close on the purchase of replacement property before a relinquished property can be sold or taxpayer needs time to search for suitable replacement property before selling a relinquished property to avoid the 45/180 day time clocks.
- A common exchange for taxpayers who want to acquire a property and construct improvements before taking title to the property as replacement property for an exchange.
- Necessary if the value of the improvements is important for replacing with property of equal or greater value in order to avoid the taxable “trade-down”.
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