• Tenants in Common
• 1031 Terminology
• Further Reading
A Simultaneous Exchange is an exchange in which both the closing of the relinquished property and the replacement property occur on the same day, generally right after each other. No time takes place in between the transaction. This type of exchange is covered by the Safe Harbor Regulations.
A Delayed Exchange is an exchange where the replacement property is closed on a different date than the closing of the relinquished property. This type of exchange is can also be called a "Starker Exchange" after the well known Supreme Court case. There are strict time frames set down by the Code and Regulations. The exchange must be completed during this time. They are the 45-Day Clock and the 180-Day Clock. Delayed exchanges are also covered by the Safe Harbor Regulations.
The role of the Qualified Intermediary is necessary to completing a successful 1031 exchange. The Qualified Intermediary holds the buyer and seller of property together into the form of a 1031 Exchange.
In order to take full advantage of the qualified intermediary "safe harbor", a written agreement must be made between the taxpayer and intermediary. It is necessary to expressly note the limiting of the taxpayer's rights to receive, pledge, borrow or otherwise obtain any benefits of the money or property held by the intermediary.
Exchange Intermediary facilitates the 1031 deferred tax exchange by preparing all the necessary documents for the transaction.
There are no licensing requirements for Intermediaries. They need merely be not an unqualified person as defined by the Internal Revenue Code. Attorneys, realtors and accountants who have served taxpayers in their professional capacities over the course of the past two years are disqualified from serving as an Intermediary in an exchange.
A Reverse 1031 Exchange, which is sometimes referred to as a "parking arrangement," occurs when a taxpayer acquires a Replacement Property prior to disposing of their Relinquished Property. A pure reverse exchange, where the taxpayer owns both the Relinquished and Replacement properties at the same time, is not allowed. The actual acquisition of the "parked" property is done by an Exchange Accommodation Titleholder or parking entity.
In a typical 1031 Reverse Exchange, the "Exchange Accommodation Titleholder" takes title to or "parks" the replacement property and holds it until the taxpayer is able to sell the relinquished property. The taxpayer then exchanges with the Exchange Accommodation Titleholder, who now owns the replacement property. An exchange structured within the safe harbor of Rev. Proc. 2000-37 cannot have a parking period that goes beyond 180 days.
The build-to-suit exchange is also known as a construction or improvement exchange. It is a tax deferred exchange where the Qualified Intermediary acquires fee ownership to the replacement property and makes improvements to it. Once the necessary improvements are completed within the exchange time period which is 180 days, ownership is then transferred to the Exchanger and the exchange transaction is completed. This exchange variation gives investors more flexibility, thus providing the opportunity to either improve an existing property or even construct a new replacement property.
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