Exchange types
Reverse 1031 exchange: buying before you sell
In a normal 1031 you sell first, then buy. A reverse exchange flips that: you acquire your replacement property before you sell the old one. It is powerful in a competitive market, but more complex and more expensive.
How it works
Because you cannot hold title to both properties at once, an Exchange Accommodation Titleholder (EAT) parks one of them, usually the new one, for up to 180 days while you sell the old one. The structure follows an IRS safe harbor (Rev. Proc. 2000-37). The same 180-day window applies.
When to use it
A reverse exchange makes sense when you have found the perfect replacement property and cannot risk losing it, or when timing forces you to close on the new property before the old one sells, common in hot markets.
Why it costs more
Reverse exchanges require the EAT to hold title, extra legal structuring, and often bridge financing, so fees typically run from about $5,000 to $15,000 or more, well above a standard forward exchange. They also demand a facilitator experienced in the reverse structure.
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Frequently asked questions
- How long do I have in a reverse exchange?
- The same 180 days. The EAT parks the property while you sell your relinquished property and complete the exchange within that window.
- Why is a reverse exchange more expensive?
- It requires an Exchange Accommodation Titleholder to hold title, additional legal structuring, and often bridge financing, which push fees well above a standard forward exchange.
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Educational information only, not tax, legal, or investment advice. 1031 rules and deadlines are strict and can change, so confirm with the IRS and your own CPA or attorney before acting. How we source content.