1031 Reverse Exchange

Reverse 1031 Exchange Frequently Asked Questions

When should I consider doing a reverse exchange?

An Exchangor should consider doing a reverse exchange when they need to acquire their replacement property before they can sell their relinquished property.

What entity does Downstream use to take title to parked properties in a reverse exchange?

We have numerous limited liability companies (LLCs) that we have created solely for the purpose of holding property for a reverse exchange.

Will I have to pay supplemental taxes for the period Downstream holds title to my property while facilitating the reverse exchange?

Maybe. The county in which the property is located may assess supplemental taxes for the period Downstream holds title to your property during a reverse exchange. Downstream withholds an estimated supplemental tax amount from your proceeds after your reverse exchange is completed. If supplemental taxes are assessed, Downstream pays that amount, and then the Exchangor must petition the county for a refund. Many of our clients who have petitioned the county have received refunds for the supplemental taxes paid. If the county does not assess supplemental taxes within the next year, we refund the amount withheld to you.

Are there any additional costs to have my property transferred during a reverse exchange?

Yes. We use a document service to prepare grant deeds and record title changes for us. They charge about $175 to transfer title to one property. For a Method 2 reverse exchange, this fee can be paid using exchange funds.

Also, if your reverse exchange fails, in some states (HI, AZ) you must pay transfer taxes and escrow fees in order to have your property transferred back to you.

Will doing a reverse exchange help me defer taxes in the same manner as a delayed exchange?

Yes. Properly doing a reverse exchange will allow you to defer taxes exactly as if you properly did a delayed exchange.

What time limits need to be followed to successfully accomplish a reverse exchange?

In a Method 1 reverse exchange, after the accommodator takes title to the relinquished property, the client has 180 days to sell that property.

In a Method 2 reverse exchange, after the accommodator takes title to the replacement property, the client has 180 days to sell the relinquished property.

The above information is provided for general information purposes only. You should discuss your actual individual property transaction with your current attorney, certified public accountant or us.

We hope you find the above information helpful. We are aware that you will have questions about your individual transaction and encourage you to e-mail, call us at (800) 743-1031 or FAX us at (626) 796-8222. We will be pleased to assist you.