Reverse exchanges are commonly structured under the guidelines set forth under IRS Revenue Procedure 2000-37. A safe harbor is available for reverse exchanges under the following conditions:
The replacement property is purchased in the name of an "exchange accommodation titleholder" (EAT), which is an LLC formed by 1031trx LLC for the purpose of holding title to the property (e.g., "parking" the property). The EAT borrows money from the exchangor (and/or a lender) to acquire title to the replacement property and then holds title to the replacement property until the eventual sale of the relinquished property.
The relinquished property is identified within 45 days of the purchase of the replacement property.
The relinquished property must be sold within 180 days of the purchase of the replacement property.
Revenue Procedure 2000-37 prohibits the exchangor from having ownership of the relinquished and replacement property simultaneously. The exchanger must have the funds available to purchase the replacement property before selling the relinquished property (if financing, the lender must be willing to lend the money to the EAT for the purchase). 1031trx LLC creates a lease between the EAT and the exchangor so the exchangor has access to the parked property until the 1031 reverse exchange is finalized.