Reverse 1031 or other options if we have found the next property

2 Replies

We are trying to do a 1031. We have a property for sale but we have not had any offers yet and we have found a duplex to buy. The seller of the duplex does not want to wait for us to sell the other property. Are there reverse 1031’s? Or could we put the duplex into some kind of holding company until the 1st property sells? Or is there a better option? We’d really like to use the 1031, the 1st property is a flip and we’ve only owned it for 2 months so there will be short term capital gains taxes.

@Micki Sluyter , There is a process called the reverse exchange that could work for you.  It adds a bit of complexity and cost but if that duplex is perfect for you then this would be the right tool.  

What happens is that your QI (the 1031 folks) form a holding entity called the Exchange Accommodating Title holder (EAT) and take title to the duplex so you don't.  It's under your control and you provide the financing for it (usually a portfolio lender or private lender works just fine).  But you have no ownership.  Once that entity takes title to it you have 180 days to sell your old property and take title to the new property that the QI is holding for you 

In a normal world you would not be able to do a 1031 on the property you own.  You describe it as a flip and it appears that your intent was not to hold for productive use but to resell.  By starting a reverse exchange you can put a hold or rent that old property for a bit and then sell so you can demonstrate that your intent was not primarily to resell.  Timing is a little wonky with your need to demonstrate intent. But there might be a way to make it work.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here