1031 Exchange Types

SIMULTANEOUS

A simultaneous exchange occurs when ownership of both the relinquished property and the replacement property transfers concurrently. Simultaneous exchanges are rare due to difficulties in coordinating concurrent deed transfers on multiple properties.

DELAYED

The delayed or "starker" exchange is the most common type of exchange. In a delayed exchange, the relinquished property is transferred at Time 1, and the replacement property is acquired at Time 2. There are variations to the basic delayed exchange. Descriptions of a few of the most predominant types of delayed exchanges follow.

IMPROVEMENT/CONSTRUCTION

The exchanger may be interested in acquiring replacement property for the purpose of new construction or they may be considering making improvements to an existing structure. New construction or improvements can be added as part of the exchange with title passing to the intermediary who in turn makes payments to contractors and other suppliers out of the exchange funds. Title is then transferred to the exchanger at the higher value upon completion of improvements or the 180th day, whichever occurs first. In essence, if replacement property is of lesser value than the relinquished property, improvement or construction is an effective tool to increase the value of the replacement property to reduce or eliminate a taxable event.

REVERSE

The reverse exchange is used when an investor wishes to acquire title to the replacement property before the relinquished property sells. In a reverse exchange, the intermediary, acting as an Accommodating Titleholder (AT), acquires the replacement property and warehouses it until the relinquished property sells, at which time a simultaneous or delayed exchange is structured. It also may be possible for the intermediary to become an interim or "straw" buyer for the relinquished property and immediately structure a simultaneous exchange into the replacement property. In either event, there are exchange possibilities for investors who wish to acquire title to the replacement property before transferring title to their relinquished property.

BUSINESS/PERSONAL PROPERTY

Internal Revenue Code Section 1031 permits the exchange of property other than real estate. For example, investors may exchange business assets, valuable paintings, livestock, equipment or other personal property. Although business or personal property exchanges are common, they can be trickier because they require very specific asset allocations. Also, like-kind definitions are more restrictive than with real property. For these reasons, an exchanger should consult a tax advisor before initiating an exchange and should carefully select the intermediary.

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