Exchange Type
1031 Reverse Exchange
Also called a Parking Exchange — a Reverse Exchange allows you to acquire the replacement property before selling your relinquished property, through an Exchange Accommodation Titleholder structure.
What is a 1031 Reverse Exchange?
A 1031 Reverse Exchange — also known as a Parking Exchange — is a variation of the standard 1031 Exchange that allows investors to acquire their replacement property before selling their current (relinquished) property. Like a traditional 1031 Exchange, this strategy defers capital gains taxes, but in reverse order.
Why Choose a Reverse Exchange?
- Secure an ideal replacement property before market changes impact availability or price
- Avoid forced sales — take time to find the right buyer for your relinquished property
- Maximize tax benefits by deferring capital gains taxes while transitioning between properties
- Navigate competitive markets without missing time-sensitive investment opportunities
The Exchange Accommodation Titleholder (EAT)
In a Reverse Exchange, the replacement property is acquired first and held by an Exchange Accommodation Titleholder (EAT) — typically created by the Qualified Intermediary — until the investor sells their relinquished property. The EAT temporarily "parks" the replacement property to maintain IRS compliance while the investor markets their existing asset.
Step-by-Step Process
Engage a Qualified Intermediary
Select an experienced QI with specific expertise in Reverse Exchanges — this structure requires specialized knowledge.
Set Up the EAT Entity
The QI creates an Exchange Accommodation Titleholder (EAT) — a single-member LLC — to take title to the replacement property on your behalf.
Acquire the Replacement Property
The EAT acquires and holds title to the replacement property. You may operate it under a triple-net lease while it is parked with the EAT.
Identify & Sell the Relinquished Property (45/180-Day Rules)
Within 45 days of acquiring the replacement, identify the relinquished property. Then complete its sale within the 180-day window.
Complete the Exchange
Sale proceeds flow through the QI to pay down the EAT acquisition loan. The QI then transfers the replacement property title to you, completing the exchange.
Key Considerations
Greater Complexity
More moving parts than a forward exchange — requires experienced legal and QI coordination from day one.
Higher Costs
Additional legal and administrative costs for the EAT structure are expected — plan accordingly.
Financing Challenges
Some lenders have restrictions when the EAT temporarily holds title — arrange financing in advance.
180-Day Limit Still Applies
The entire transaction must be completed within 180 days of the EAT acquiring the replacement property.
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