I'd like to do a reverse 1031 exchange. However, the property I'd like to purchase will not cover the value of the properties I'd like to sell, so I would like to park the remaining gain into some DST investments. Is this even possible? As I understand, in a reverse exchange, the purchased properties are placed into some kind of legal entity (EAT?). So will I just deposit money into the EAT and instruct the QI to make separate investments on the main property and the DSTs?
Will I even be able to make DST investments via the EAT? They will need to verify accredited investor status and how will it work with a legal entity?
Finally, who controls the funds in the EAT? Is there any legal barrier preventing the QI from just taking the money and run away? Thanks much.
Hi @Chris Ng ,
Yes, there are a number of ways to acquire and/or sell multiple properties through a Reverse 1031 Exchange.
(1) You could acquire and "park" legal title to all of the replacement properties with the Qualified Intermediary and then sell your existing relinquished property.
(2) You could acquire and "park" legal title to one of the replacement properties with the Qualified Intermediary and then sell your existing relinquished property. The sale of the relinquished property could be bifurcated or allocated so that some of the sale is allocated to the Reverse 1031 Exchange. This would wrap up the Reverse 1031 Exchange. The balance of the sale of the relinquished property would then be allocated to a brand new Forward 1031 Exchange so that you could acquire and exchange into the DSTs. This is actually two separate 1031 Exchanges linked together; a Reverse 1031 Exchange followed by a Forward 1031 Exchange.
There are other potential variations as well, but it gives you an idea.
@Bill Exeter Thanks for the details. Sounds like (1) is simpler and more straigtforward, isn't it?
Hi @Chris Ng ,
Yes, option number one is absolutely simpler, less complicated and less costly. However, it all depends upon timing. It works great if you can get all of your replacement properties to close at the right time. Option number two is really a back-up strategy when some of the replacement properties close before and some after the sale of your relinquished property.