Reverse Exchanges: Can Benefit Real Property Owners

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Overview: The Internal Revenue Code provides an exception to the general rule that requires the recognition of gain or loss upon the sale or exchange of property. At a first reading of Section 1031, obtaining the benefits of the tax-deferred exchange might seem possible only when the exchanges occur simultaneously. As a practical matter, though, a property owner may have to purchase the replacement property first before selling its existing property. For example, a property owner may want certain improvements to be made on the replacement property before taking title to it. If the transactions take place in these situations, the property owner may be party to a taxable sale rather than a tax-deferred exchange. Fortunately, the parties may be able to structure such a transaction as a "reverse exchange. Using a reverse exchange, the property owner will be able to achieve the tax-deferred benefits it seeks. Generally speaking, reverse exchanges can be structured in one of two ways to meet a property owner's goals. In the first way, the exchange occurs last from the property owner's point of view; in the second way, the exchange occurs first. The article gives the details as to implication of reverse exchange and the legal aspects attached to it.

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Format: HTML | Date: Dec 2003 | Pages: 1