1031 exchanges can be broken down into two basic categories – forward exchanges and reverse exchanges. Here, we’re going to explain the reverse 1031 exchange and how it differs from the forward exchange. Reach out to us today to speak with a St. Cloud qualified intermediary who can walk you through all the aspects of your reverse 1031 exchange – 612.643.1031.
A Primer on Reverse Exchanges
A reverse exchange differs from a forward exchange in a few ways. The most obvious difference is the order in which the selling and purchasing of property happen. With a forward 1031 exchange, you sell your old property first, and buy your replacement property after that. The opposite is true in a reverse 1031 exchange. First, you buy your replacement property, and then you sell your relinquished property. By way of an example, let’s say I have a piece of farmland in St. Cloud that I use primarily for business purposes, and I want to exchange into an apartment complex in downtown St. Cloud. In a reverse exchange I would close on the new apartment complex first, and then sell my farmland within the 180 days allotted for my exchange.
Reverse exchanges are subject to the same rules and restrictions that forward exchanges are. So remember that you have to be exchanging business property that is like-kind, and equal to or greater in value, debt, and equity. You also need to be aware of your 1031 exchange deadlines – the 45 day / 180 day time periods. Use our 1031 calculator to determine your exchange deadlines.
Start a Reverse Exchange in St. Cloud
Don’t fall into any of the common traps of a reverse 1031 exchange. We have seen many taxpayers start their exchanges with good intentions only to miss a deadline or make an assumption that costs them their exchange. Involve a skilled qualified intermediary early on in the exchange process to ensure a successful 1031 exchange. Pick up the phone and give us a call today to talk with an experienced Minnesota 1031 intermediary about your reverse exchange – 612.643.1031.