The most common type of 1031 exchange is when a person sells property and uses a qualified intermediary to purchase replacement property with the sales proceeds. This type of 1031 exchange has several names including deferred exchange, Starker exchange, standard exchange, or forward exchange.
A reverse exchange occurs when replacement property is acquired before the relinquished property is sold. Generally, either the replacement property or the relinquished property is “parked” with a third party (referred to as an “exchange accommodation titleholder” or “EAT”). Most commonly, the replacement property is parked, but there are a number of factors to consider, and it is not uncommon for relinquished property to be parked. Please note: reverse exchanges are much more complicated (and much more costly) than standard 1031 exchanges. Lonestar 1031, LLC recommends you consult with a real estate or tax attorney before beginning a reverse exchange.
It is not uncommon for an exchangor to want to use proceeds to not only purchase replacement property, but also to construct improvements on the replacement property. Enter construction exchanges (also known as “improvement exchanges”). In a construction exchange, proceeds are used to purchase replacement property, and that replacement property is parked with an exchange accommodation titleholder while improvements are made to the real property. Like reverse exchanges, construction exchanges are much more complicated and costly than standard 1031 exchanges. Lonestar 1031, LLC recommends you consult with a real estate or tax attorney before beginning a construction exchange.
A simultaneous exchange is exactly what it sounds like: one piece of property is simultaneously exchanged for another piece of property. This is the “original” 1031 exchange. Examples are one farmer trading land with another farmer or one rancher trading cattle with another rancher. Simultaneous exchanges can be very simple, but they can also get complex very quickly. In complex simultaneous 1031 exchanges, it may be best to still use a qualified intermediary. Certainly, you should consult with a real estate or tax attorney before beginning a simultaneous exchange..
For deferred exchanges and construction exchanges, replacement property must be identified within 45 days of the sale of relinquished property, and the exchange must be completed within 180 days of the sale of relinquished property. For reverse exchanges, the relinquished property must be identified within 45 days of the purchase of the replacement property, and the exchange must be completed within 180 days.
Consult Your Advisors
Lonestar 1031, LLC is managed by experienced professionals, but we cannot, and will not, give you tax or legal advice. We strongly recommend you consult your tax and legal advisors to assure your exchange will qualify as a like-kind exchange.