If the transaction is structured properly – and it must be done in advance -- the taxpayer can now acquire – or control – the new property before disposing of his old property, and still avoid recognizing any gain. To do so, the taxpayer must enter into a qualified exchange accommodation arrangement with an "exchange accommodation titleholder" – our firm has created a limited liability company, Qualified Exchange Titleholder, LLC, for this purpose. This entity takes title to either the Relinquished Property or the Replacement Property and holds title to it until the taxpayer is ready to complete the exchange. The titleholder can either transfer the new property to the taxpayer promptly, in exchange for the old (relinquished) property, then dispose of the old property later on; or transfer the new (replacement) property to the Taxpayer after a period of time, once the ultimate purchaser of the old property is prepared to close.

In a reverse exchange, the taxpayer has 45 days after the accommodator -- Qualified Exchange Titleholder, LLC -- acquires the new property to identify his relinquished property. (This will only be an issue if the taxpayer has multiple properties he could sell.) The taxpayer also has 180 days to receive title to the replacement property and for title to the relinquished property to be transferred to the ultimate purchaser to come within the safe harbor of Rev. Procedure 2000-37.  If this cannot be done, our firm will handle reverse exchanges outside of the safe harbor guidelines.  You may call or email me directly about these issues: 251-968-4764 or jule@jherbert.com    

Not only does Revenue Procedure 2000-37 sanction reverse exchanges, it goes further, and provides a number of "kinder, gentler" safe harbors to facilitate these exchanges. For example, the taxpayer may loan money to the accommodator, or guarantee a loan from a bank to the accommodator, to purchase the new property. In addition, during the time the accommodator holds title to the new property, the taxpayer may lease the property; manage the property; supervise improvements; act as a contractor; and provide other property related services to the accommodator. In sum, the new revenue procedure on reverse exchanges has made a valuable tax deferment opportunity even better. There are complex reporting requirements and unsettled issues, which an aggressive taxpayer must consider.  The IRS link for Revenue Procedure 2000-37 is http://www.irs.gov/pub/irs-irbs/irb00-40.pdf which is a PDF file.  The relevant material begins on page 308 of this publication, and it should be reviewed closely by the taxpayer's CPA.

Improvement exchanges are handled in a similar fashion – the intermediary takes title to the Replacement Property during the period the improvements are placed on the property and then transfers the property to the taxpayer – again within the 180-day period which begins the date the Relinquished Property is transferred.  Each improvement exchange is unique and requires a lot of preliminary planning.  Email me with the autorespond feature found here and let us discuss the details.  If you use the body of the email to give me some information about what you would like to accomplish, I will respond in detail giving you some ideas and alternatives.

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