Reverse 1031 Exchange – The buy now, replace later strategy

(c) Copyright 2006 by Mark Hayes

Sometimes unexpected situations occur such as the sale of your relinquished property that you had planned for a normal 1031 exchange falls through. For example, the buyer of your property ultimately did not qualify for his or her financing and could not close on the deal. If this happens and you already have your hand on an ideal replacement property for your 1031 exchange, don’t let the failing sale stop you from buying your replacement property. Use the reverse 1031 exchange strategy while you find a new buyer for your relinquished property.

Many real estate investors missed out on a great real estate deal because they are not confident they could find a replacement property in time to meet the 45 day and 180 day 1031 exchange rules. If you are one of the real estate investors who want to do a 1031 exchange but are afraid of the time frame, use the reverse 1031 exchange strategy. You can find a replacement property before you try to sell your relinquished property this way.

The reverse 1031 exchange strategy is especially useful when you want to buy a new construction for your replacement property. It is a commonly known fact that many new construction properties are not finished on time and you may not be able to plan when the 1031 exchange will happen. If you want a new construction as a replacement property, a reverse 1031 exchange is a perfect solution for you. You should wait for the new construction to finish, buy it, and then sell your relinquished property without triggering capital gains tax.

Does the reverse 1031 exchange sound useful for your own investing? Don't be put off by the complexity that everyone talks about. If you think a reverse 1031 exchange will benefit you, simply try it. You may be surprised how easy it is to actually do.

This article merely touches on the topic of 1031 exchange. There is much more to learn on the topic, such as the rules, qualifications, and penalties. For more information on Capital Gains and Reverse 1031 exchange rules, visit http://www.capital-gains.info/1031_Exchange.html.

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Mark Hays is a financial manager with 25 years of experience in financial management and estate planning. He specializes in tax planning and has helped many benefit from many tax deferral and tax reduction strategies. Browse Mark's articles on this website.