A reverse 1031 exchange allows you to preserve your ability to defer taxes, even when buying before selling. In this article, we outline seven steps to conducting a successful reverse 1031 exchange.
Form the Holding LLC
We establish a single-purpose LLC to act as the Exchange Accommodation Titleholder (EAT). This entity will initially be owned by CPEC1031, LLC to hold title to your “parked” replacement property.
Execute Reverse Exchange Agreements
We draft and circulate the necessary 1031 exchange documentation, including the reverse exchange agreement, for your review and electronic signature.
Acquire and Hold the Replacement Property
Using your cash and/or bank financing, the LLC closes on the new property and holds title for up to 180 days while you arrange to sell your relinquished real property.
Operate via Triple-Net Lease
The LLC leases the “parked” property back to you, allowing you to manage, collect revenue, and cover expenses like insurance, taxes, and maintenance during the holding period.
Secure Insurance Coverage
Provide an insurance certificate naming you, the bank, and the EAT (Exchange Accommodation Titleholder) as insured parties under your liability and property coverage.
Close on the Sale & Complete Exchange
Once your relinquished property closes through CPEC1031, LLC, we apply the net proceeds to repay any loans or costs. Then, we transfer ownership of the replacement property to you, which completes the reverse exchange.
Final Tax Reporting: Close-Out Letter & IRS Filing
CPEC1031, LLC issues a final summary letter documenting key dates and utilization of funds. Then, you’ll report the exchange on IRS Form 8824 with your tax professional as part of your federal tax return.
Considering a Reverse 1031 Exchange?
We’ll guide you through the reverse 1031 exchange process. Reverse 1031 exchanges are complex but our team has the experience and structure to handle them seamlessly.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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