Reverse 1031 Exchanges

Written by Linda Alexander
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Forward 1031 exchanges involve the sale of one property and then the purchase of a replacement property. They are also known as deferred exchanges. This is how a 1031 is usually done. Often, investors locate replacement property before they sell their relinquished property. When this occurs, they can enter into a reverse exchange.

How Reverse 1031 Exchanges Happen

In reverse exchanges, you can buy a replacement property before you sell your current property. It works just like a 1031 exchange except in reverse. Because timing is so important in order to take advantage of tax deferral, doing a reverse exchange alleviates some of the stress associated with trying to close a deal in such a strict time frame.

With reverse exchanges, you can take your time finding a property that is appropriate for your situation. If one is not available in the exact amount you have to spend, you don't have to panic. Once you find a suitable property, you can purchase it and then sell your relinquished property, and you will still be able to take advantage of the 1031 exchange.

If you have trouble locating properties, you should know that many real estate companies have inventories of 1031 properties. You can search their databases to find the perfect property. They will help you find just what you are looking for, whether you are conducting a forward exchange or doing it in reverse.

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